France's Revised Deficit Reduction Plan: Realistic Over Ambitious

France’s latest deficit reduction plan, revealed on Tuesday, opts for a realistic versus ambitious approach. French Prime Minister Michel Barnier announced their intent to cut the budget deficit to 5% of GDP by 2025 and below 3% by 2029. EU officials will closely monitor the credibility of the plan's reforms.

France's updated, slower deficit reduction strategy, unveiled on Tuesday, is considered realistic if not ambitious, according to euro zone government and EU officials. The effectiveness of the plan hinges on upcoming reforms from Paris.

French Prime Minister Michel Barnier told parliament that the budget deficit would be reduced to 5% of GDP by 2025, eventually falling below the EU threshold of 3% by 2029—two years behind the previous projection. A senior euro zone official noted, "Is it ambitious? No. Is it legally viable? Most likely yes." Yet, the plan's credibility will be under intense scrutiny.

Under new EU fiscal rules, France and other EU countries must present four- to seven-year reform and debt reduction plans to the European Commission. Discussions will revolve around the proposed French reforms and backloading avoidance. From spending cuts and tax hikes, France's 2025 budget draft and seven-year plan will be vetted by the Commission and EU finance ministers.

Latvia's Valdis Dombrovskis, set to become EU economic commissioner in December, faces the challenge of overseeing these new frameworks. The European Commission will issue deficit-cutting recommendations to France in November under its disciplinary procedure.

(With inputs from agencies.)