France’s prolonged political instability is beginning to dent economic growth and weaken confidence, according to Bank of France Governor François Villeroy de Galhau. Speaking to RTL radio on Friday, he estimated that the ongoing uncertainty has already cost the economy at least 0.2 percentage points of growth a tangible drag on the eurozone’s second-largest economy.
The warning comes as President Emmanuel Macron prepares to appoint his sixth prime minister in under two years, an effort to stabilize France’s most severe political crisis in decades.
Economic Impact
“Uncertainty is the opposite of confidence and therefore the number one enemy of growth,” Villeroy said, explaining that households tend to save more and consume less when anxious, while businesses delay investment decisions amid political volatility.
He acknowledged that despite the turbulence, “the economy is holding up”, crediting the resilience of entrepreneurs and the hard work of the French people. The Bank of France’s latest monthly survey echoed that sentiment showing fragile confidence but steady output.
Villeroy urged the government to rein in rising public debt and maintain fiscal discipline, warning that financial markets are watching closely. He emphasized that France should ensure its budget deficit does not exceed 4.8% of GDP by 2026, aligning with European fiscal rules and investor expectations.
Outgoing Prime Minister Sébastien Lecornu had previously set a similar goal, aiming to bring the deficit down from 5.4% this year to 4.7% in 2026.
Villeroy stressed that France has committed to reducing the deficit to 3% by 2029, adding: “The whole of Europe is watching us investors can punish us on the markets if we fall short.”
Why It Matters
France’s political gridlock marked by cabinet reshuffles, parliamentary deadlock, and policy paralysis threatens to erode investor confidence and slow growth at a time when the country faces inflation pressures and rising debt.
The Bank of France’s warning signals that political instability is beginning to spill over into the real economy, with consumer and business sentiment already showing signs of fatigue.
If fiscal reforms stall or markets lose patience, borrowing costs could rise, complicating Macron’s effort to maintain economic credibility within the EU.
Markets: Investors are monitoring French bond spreads for signs of pressure amid fiscal and political uncertainty.
Public Mood: Villeroy admitted morale is low, saying, “We’re all fed up with this political mess.”
European Context: EU officials are expected to keep a close eye on France’s fiscal trajectory as part of renewed budget oversight across the bloc.
What’s Next
All eyes are now on President Macron’s choice for the next prime minister, which could determine whether France stabilizes politically or faces renewed turbulence. Markets will be watching for signs of policy clarity particularly on spending cuts, tax reform, and EU budget commitments.
The Bank of France is expected to maintain a cautious stance in upcoming forecasts, balancing inflation control with fragile growth.
If political paralysis persists into 2025, economists warn that France’s credit outlook could come under review, while the European Commission may pressure Paris to accelerate deficit reduction plans.
Ultimately, the next few months will test whether France can rebuild investor confidence and avoid being labeled the eurozone’s weak link amid rising fiscal scrutiny across Europe.
With information from Reuters.