France Faces High-Stakes Budget Battle as Bond Spread Widens on Fiscal Concerns

France is heading into a fraught budget season as the government seeks to narrow a stubbornly wide fiscal deficit while navigating a fragmented parliament. Finance Minister Roland Lescure has said he will push for a 2027 finance bill that delivers a further improvement in public finances and expects parliament will most likely allow a budget to pass, adding that everything would be done to bring the deficit to or as close as possible to 5% of output this year. The stakes are high: budget disputes have already contributed to the fall of two prime ministers since 2024, and another showdown could trigger renewed political turmoil ahead of the presidential election scheduled for April 2027. Investors are watching closely. The spread between French and German 10-year government bond yields has widened to around 80 basis points, its highest level in nearly nine months, reflecting concerns over fiscal sustainability as public debt tracks toward roughly 120% of GDP. Officials insist demand for French debt remains solid, with Lescure saying recent issuance proceeded smoothly and Bank of France Governor Emmanuel Moulin noting that auctions continue to attract strong investor interest. Growth forecasts, meanwhile, have been trimmed as the energy shock weighs on consumption.