A Look at France's Budget Plan: A Balancing Act between Austerity Measures and Political Stability

The French budget plan is at the center of economic discussions, while markets remain optimistic that it could pass the fragmented parliament. However, there is skepticism regarding the speed at which France can get its finances in order, especially with rating reviews set to begin soon. The French government plans savings and tax increases worth 60 billion euros to reduce the deficit, expected to exceed 6% of GDP this year. The budget was announced in advance, which is why the yield spread between French and German bonds remained stable at about 77 basis points on Friday. Experts like Jens Peter Sorensen from Danske Bank expect that while the passage of the budget is likely, it will likely be associated with high volatility. This uncertainty has kept the spread close to the peak of around 85 basis points reached in the summer when concerns about France's finances grew. Major question marks still linger over France's ability to reduce its deficit as quickly as planned. Citi and Goldman Sachs assume the government could use special powers to bypass a parliamentary vote. Marine Le Pen's party played a crucial role in the survived no-confidence vote, keeping the future of the political dynamic intriguing. The fiscal battle plan includes, among other things, the postponement of pension adjustments. While some voices fear that the measures rely more on revenue increases than expected, there remains room for doubt amid growing risks and market concerns. Potential downgrades in credit ratings could still loom for the country. Fitch and Moody's are due with their assessments next month. In the end, it remains to be seen whether France can successfully navigate the balancing act between necessary reforms and political survival.