France sells €12bn worth of bonds in last auction before budget

The bond sale raised about €12bn, which was the highest number that the government was aiming for. However, the demand seen was two and a half times more than the number of bonds available to be sold. The bonds ranged between those maturing in 10 years to those maturing in 30 years. 

The bond sale comes at a time when the French public is waiting for the upcoming budget announcement. More details are expected to be revealed next week regarding how the new government plans to get a grip on France’s waning investor confidence and soaring deficit. 

As such, the recent bond sales are expected to go a long way in helping the country ease its financial woes. 

France has been dealing with increased political turbulence since June, when President Emmanuel Macron called a snap election. Since then, the country has also had to face a higher cost burden on borrowing, compared to other countries. 

This uncertainty has led to a number of foreign investors abandoning the French market and bonds for relatively more stable countries like the US, parts of Asia and other parts of Europe. 

Evelyne Gomez-Liechti, a strategist at Mizuho International, said, as reported by Bloomberg: “France is not out of the woods yet and the budget presentation is next week, but Prime Minister Barnier can breathe a sigh of relief that the sale went without a hitch.”

How is Barnier expected to handle France’s deficit?

There have been several contributing factors to the deficit France is facing at the moment. Key amongst these is the COVID-19 pandemic, which took a significant toll on both the economy and public finances, especially in the form of support measures. 

Higher inflation, which was also seen in several other parts of the world, also added to this, as the government was forced to spend even more in financial support measures in order to keep jobs and businesses afloat. Events such as the New Caledonian security crisis also made the French deficit worse. 

Now, the government has to choose between potentially increasing taxes substantially, or reducing spending, in order to drag France out of the financial hole it has dug itself into. 

Barnier has recently announced a new €60bn budget plan for next year, which would include a potential €20bn in revenues from taxes, and €40bn in spending cuts. This plan is expected to go a long way in helping bring the deficit down from 6% of gross domestic product (GDP) this year, to 5% next year, before eventually lowering it to below 3% by 2029. 

In order to be able to meet these proposed targets, ministries need to stick to the recommendation they had gotten from the Gabriel Attal government, back in August. 

The new budget is also likely to highlight savings plans based on decreases in social security spending, whereas the higher tax revenue is expected to come from increased taxes on wealthy individuals and big companies.