FX.co ★ Paris finds common ground on deficit, easing market concerns

The International Monetary Fund is breathing a cautious sigh of relief. After months of political paralysis and government reshuffling, France has finally found a point of consensus: a commitment to fiscal consolidation. For now, this is enough to keep markets calm, even though the political climate in Paris remains unstable.

According to IMF European Department Director Alfred Kammer, France is not triggering alarm bells across bond markets. Yield spreads versus German securities remain contained, and liquidity in French sovereign debt markets is holding up. In short, there is no need to panic.

Paris has recently unveiled its 2026 budget framework, proposing a deficit of 4.7% of GDP, modestly tighter than the country’s usual range of 5-6%. In a rare show of unity, lawmakers from the political left and right seem to agree on the need to reduce reliance on debt. Although the debate remains heated, the direction is clearer: the era of living in debt may be coming to an end.

Currently, Kammer sees no acute fiscal risks that require urgent policy shifts. That gives France room to debate where exactly the cuts should fall—pensions, social programs, or infrastructure investment. What matters more to investors is the shared orientation toward deficit reduction.

Difficult decisions still lie ahead. Which sector will bear the brunt of the pain: the agricultural sector, the tech industry, or the champions of affordable Bordeaux? For now, the IMF is content that France’s political class seems to acknowledge what it once evaded—that chronic budget deficits are not just part of the culture but a macroeconomic vulnerability.