Tensions on French debt: “The solution is found first in France” in terms of the budget, warns Christine Lagarde

The means to stop the surge in yield rates on French debt “must first be found in France” at the budget level, in order to reassure the markets, said the President of the European Central Bank (ECB), Christine Lagarde, this Wednesday, October 14. The fever on the bond market “is not limited to Europe or France, it affects the entire planet. That said, certain particular circumstances mean that certain countries are hit harder - France is a striking example,” she insisted during an event organized by the CNN television channel in Bangkok.

In this intervention on the sidelines of the annual meetings of the International Monetary Fund (IMF) and the World Bank, she judged that it was above all up to Paris to reassure investors by displaying its budgetary seriousness. “As far as France is concerned, the solution is found first and fundamentally in France, at the level of budgetary policy,” warned Christine Lagarde, seeming to minimize the possibility of intervention by the ECB in the bond market.

The examination of the 2027 budget began on Tuesday at the National Assembly, with the ambition of returning to a deficit of 5% of GDP next year. But its adoption appears very uncertain, due to lack of majority and the approach of the presidential election next year. However, on the debt market, France is particularly suffering from questions about its economic and political stability: its 10-year borrowing rate is approaching 5%.

The governor of the Bank of France Emmanuel Moulin, also present in Bangkok, called earlier on Wednesday on parliamentarians and the French executive to “take their responsibilities” on the budget. “There are a certain number of provisions in the French Constitution allowing a budget to be voted or adopted even without a majority in Parliament,” he recalled, in an apparent allusion to article 49.3 or the use of orders.

The French situation also attracts the attention of the IMF. “France is currently seeking to adopt a budget that would place its deficit and debt on a downward trajectory,” the Fund’s general director, Kristalina Georgieva, observed in Bangkok to the press. “However, it will take time to bring them back to levels likely to inspire confidence, complete confidence, both among the population and investors,” she warned.