France's Budget Deficit Challenge: Can It Be Fixed in Five Years?

France's Bank head Francois Villeroy de Galhau says lowering the nation's budget deficit to the EU limit in three years is unrealistic, but possible in five years with appropriate measures. Weak tax revenues and budget overruns have made previous targets unfeasible, placing pressure on the new government to find financial solutions.

France cannot realistically lower its budget deficit to the EU limit in three years, but it could be possible within five years with the right course of action, said Bank of France head Francois Villeroy de Galhau on Wednesday.

The previous government planned to cut the fiscal shortfall to 3% of GDP by 2027, but weak tax revenues and budget overruns have left that target out of reach, creating challenges for the new cabinet. "Three years is not realistic, not economically or with regards to growth. But to do it in five years is possible," Villeroy, also a policymaker at the European Central Bank, told France 2 TV.

Earlier this week, Finance Minister Antoine Armand highlighted that the budget deficit is among the worst in French history. The previous aim was to limit the 2024 budget deficit to 5.1% of GDP, but new estimates suggest it could spiral towards 6%, forcing new Prime Minister Michel Barnier to consider billions in budget cuts and targeted tax increases as the 2025 budget finalization date nears.

(With inputs from agencies.)