France’s €54 Billion Plan Has Holes

France says it needs €54 billion in savings to bring its 2027 deficit down to 5% of GDP (La Dépêche). But the government has not identified €54 billion of specific spending cuts or tax rises. It has identified a fraction. The rest comes from a worse starting point and from inflation quietly eroding what it pays workers and pensioners. As we reported when the package was announced (To Brief), a fragmented National Assembly has no guaranteed majority to pass any of it.

How €30 billion became €54 billion

The previous government discussion centred on roughly €30 billion. Back then, the deficit projected if the government changed nothing sat at about 5.7% of GDP. Prime Minister Lecornu's team now puts that figure above 6.5% (European Commission, Budget Ministry). Applied to France's roughly €2.9 trillion economy (Eurostat), that worse baseline accounts for most of the jump from €30 billion to €54 billion. No line-by-line explanation of the increase has been published.

The government forecasts 1% real GDP growth and 1.8% inflation for 2027 (French Economy Ministry). Those inflation assumptions matter. French pensions are legally indexed to prices, so freezing them saves the government whatever inflation would have added. The "effort" partly consists of letting rising prices do the cutting.

Pensioners and public workers absorb the clearest costs

The largest identified household measure targets pensioners, at roughly €6 billion (Le Monde). Parliament will choose between two very different instruments. Option one: freeze or under-index all pensions, so every retiree's income falls behind inflation. Option two: scrap the 10% pension income-tax allowance, which would concentrate the hit on pensioners with enough income to owe tax (LCP). One number, two completely different distributions of pain.

Civil servants face a freeze on the salary index point, the common monetary base for public-sector pay. The budget saving: about €2 billion (La Dépêche). The effect on workers: a real-terms pay cut, since their wages stay flat while the government expects prices to rise 1.8%.

On the corporate side, the temporary surtax on large companies drops from about €8 billion to €5 billion (Budget Ministry). That means big firms would pay more than if the levy expired entirely, but less than they pay today. The government counts the difference against full expiry as a saving. Defence, meanwhile, gets an extra €6.4 billion (Le Monde). The pattern is clear: identifiable restraint falls on households and public employees, while the corporate tax burden eases.

Whether markets believe it

On 18 September, the gap between French and German ten-year borrowing costs hit 100 basis points (one full percentage point) for the first time since 2012 (Boursorama/Reuters, Borsa Italiana). That spread (the extra interest investors demand for French political and budget risk over the German benchmark) has been widening for months. France's Cour des comptes (the public audit office) estimates that actually stabilising the debt ratio would require a deficit near 2.8% of GDP (Cour des comptes). The 5% target slows the deterioration. It does not stop it.

The EU's Excessive Deficit Procedure requires France to get below 3% of GDP, with Council recommendations setting the path. Brussels can expose the gap between promise and plan. It cannot assemble the parliamentary votes to close it.

The budget bills are due on 30 September, followed by an independent assessment from the Haut Conseil des finances publiques (the fiscal council that checks whether the government's numbers add up). Those are the first real test. Until then, France has announced a deficit target and a partial list of measures whose clearest costs fall on pensioners and public employees. Much of the remaining €54 billion has not been specified. Some of it is simply inflation, counted as policy.