French Central Bank Warns of Financial Strangulation Risk Without Budget Deficit Reduction

François Villeroy de Galhau, the president of the Bank of France, has issued a warning that the nation risks facing a "financial and economic strangulation that could last for generations" unless Paris reduces its budget deficit to 5% or less within the current year.

In a radio interview on Saturday, Villeroy de Galhau emphasized that maintaining the current deficit would place the government in a precarious position across various fronts, including budgetary, economic, and intergenerational issues. He highlighted the challenge of balancing support for the elderly and the youth, noting that the current pension system is a burden on younger generations. He stated, "We cannot continue like this."

The central bank president pointed out that most neighboring European countries have successfully reduced their budget deficits. He urged the French parliament to reach a compromise that would ensure the adoption of the 2026 budget while also reducing the deficit through prudent fiscal decisions and spending control.

It is important to note that the French parliament resumed discussions on the 2026 budget bill on Thursday. The original proposal aimed to lower the deficit to 4.7% of GDP through measures such as tax increases and freezing pensions and social benefits. However, these measures were later revoked after several amendments, and the parliament failed to reach a final agreement by December 2025, forcing President Emmanuel Macron to enact a temporary law to ensure continued funding for public institutions.

The revised budget proposal is set to be presented to parliament again on January 13, following a review by the finance committee, in an effort to reach a consensus version that would satisfy both the National Assembly and the Senate.