France considered ‘fiscal time bomb’ for EU

(MENAFN) France’s worsening fiscal situation is raising alarms across the European Union, with financial analysts warning of potential ripple effects on the euro and EU cohesion, according to a Bloomberg report. Citing ING Groep NV strategists, the report highlights renewed investor unease over Prime Minister Francois Bayrou’s controversial deficit-reduction plan.

The euro fell to a one-month low this week, partly due to political and economic instability in France. Bayrou’s proposed €43.8 billion ($50.9 billion) austerity package aims to address a national deficit that hit 5.8% of GDP last year—nearly double the EU’s 3% threshold. His plan includes deep cuts to public sector jobs, pension freezes, reduced welfare spending, and even the elimination of some public holidays to boost productivity.

ING currency strategist Francesco Pesole noted that while the euro's drop is mostly influenced by a stronger U.S. dollar, France's internal fiscal and political problems are contributing factors. “The French deficit issue is a ticking bomb for EU sentiment,” he warned, adding that broader currency market effects could soon follow.

The proposals have ignited fierce political backlash. Left-wing opposition parties, including Jean-Luc Mélenchon’s La France Insoumise, accuse the government of slashing social protections while increasing military spending. Mélenchon called for Bayrou’s resignation, saying the public “can no longer tolerate these injustices.”

France’s defense budget is set to rise significantly, with projections reaching €64 billion by 2027—double the 2017 figure. President Emmanuel Macron has pledged an additional €6.5 billion over the next two years in response to growing security concerns in Europe. A new defense review warned of a potential large-scale war on the continent by 2030, citing Russia as a key threat—a claim the Kremlin has denied, accusing NATO of inflaming tensions for strategic gain.

Bayrou, who has already weathered eight no-confidence votes, must now rally support in Parliament to advance his economic proposals. The right-wing National Rally party has rejected the spending cuts and is pushing for another no-confidence vote ahead of the full budget announcement in October.

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