France completed its final bond issue worth 12 billion euros on Thursday, as it awaits the announcement of new Prime Minister Michel Barnier’s 2025 budget. The country is expected to focus on plans to reduce France’s budget deficit and boost investor confidence.
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The bond sale raised about 12 billion euros, the highest amount the government had targeted. However, the observed demand was 2.5 times the number of bonds available for sale. Bonds ranged in maturity from 10 years to 30 years.
The bond sale comes at a time when French citizens are eagerly awaiting the announcement of the upcoming budget. More details are expected next week on how the new government plans to deal with France’s declining investor confidence and soaring budget deficit.
The recent bond sales are therefore expected to go a long way in easing the country’s financial woes.
France has been dealing with increasing political turmoil since June, when President Emmanuel Macron called a snap election. Since then, the country has also had to face higher borrowing costs compared to other countries.
This uncertainty has led many foreign investors to abandon French markets and bonds and invest in more stable countries such as the United States, parts of Asia and other parts of Europe.
As reported by Bloomberg, Mizuho International strategist Evelyn Gomez Lichti said: “France is still not out of the crisis and the budget is not due next week, but Prime Minister Barnier is confident that the sale has been completed successfully. We can breathe a sigh of relief.” A problem has occurred. ”
How is Mr. Barnier expected to deal with France’s budget deficit?
The budget deficit that France currently faces can be attributed to several factors. Chief among them is the coronavirus pandemic, which has hit both the economy and public finances hard, especially in the form of support measures.
This was compounded by the rise in inflation rates seen in other parts of the world, forcing governments to spend more on financial support measures to keep jobs and businesses afloat. Events such as the security crisis in New Caledonia also worsened France’s budget deficit.
The government is now faced with the choice of either significantly raising taxes or cutting spending to get France out of the fiscal hole it has dug itself.
Prime Minister Barnier recently announced a new budget for next year of 60 billion euros, including 20 billion euros in potential tax revenues and 40 billion euros in spending cuts. The plan is expected to go a long way in bringing the budget deficit down from 6% of gross domestic product (GDP) this year to 5% next year, and ultimately below 3% by 2029.
To be able to achieve these proposed goals, ministries will need to follow recommendations received from Gabriel Attal’s government in August.
The new budget is also likely to emphasize savings plans based on reduced social security spending, while any increase in tax revenue is expected to come from higher taxes on the wealthy and large corporations.
