France could reduce deficit to EU limit in five years, says Bank of France chief

PARIS (Reuters) -It is not realistic for France to lower its deficit to 3% of GDP within three years but it could be possible within five years with the right course of action, Bank of France head Francois Villeroy de Galhau on Wednesday.

“Three years is not realistic, not economically or with regards to growth. But to do it in five years is possible,” Villeroy, who is also a policymaker at the European Central Bank, told France 2 TV.

Earlier this week, French finance minister Antoine Armand said the country’s budget deficit was one of its worst in history. The government currently expects a 2024 budget deficit of 5.1% of GDP – above the European Union’s limit of 3%.

Prime Minister Michel Barnier has suggested he would be open to raising taxes on the wealthy and some corporations as the country struggles to contain the deficit. Spending cuts are also expected, which Villeroy said in the interview that he supported.

One of the first hurdles for France’s new government will be steering a budget for 2025 through an unruly hung parliament.

In rare good news for the new government, consumer confidence improved for the third straight month in September, topping analysts’ expectations, official INSEE data showed.

An increase in the proportion of households feeling that the present is a good time to make big purchases, as well as growing optimism over the ability to save money, helped drive the index up two points to 95, still below the long-term average.

Fears about unemployment also fell.

In a sign of investor concerns about the new government’s ability to tackle the high budget deficit, France’s borrowing costs briefly rose above Spain’s on Tuesday for the first time since 2008.