PARIS, Sept 25 (Reuters) – France must do everything possible to avoid a sovereign debt crisis as its presidential election next year approaches, Bank of France Governor Emmanuel Moulin said on Friday, adding that it would be misguided to expect the European Central Bank to ride to the rescue.
France’s 10-year borrowing costs have spiralled to 4.7%, reaching the highest level since the global financial crisis in 2008 with investors demanding an extra premium to hold French debt over concerns about fiscal and political uncertainty in Paris.
Moulin said in an interview on Public Senat television that the situation was not comparable with 2008 as the financial sector was “solid, well-capitalised.”
Asked if a sovereign debt crisis is possible heading into the two-round April-May presidential election, Moulin said: “Everything must be done to ensure this scenario does not happen.”
“That is why we need a budget – a budget with savings, that puts the deficit back on a downward path,” he added.
France’s minority government is due to send its 2027 budget bill to lawmakers next Thursday, kicking off weeks of wrangling over spending cuts in the deeply divided parliament, with opposition parties hardening their positions ahead of the election.
Moulin said the French state was having no problem tapping bond markets, but warned that rising debt-servicing costs risked putting a “gradual stranglehold” on the public finances.
Asked if the European Central Bank could step in were France to struggle to fund itself, Moulin said reaching for that idea reflected “flawed reasoning.”
He added that the tools to fix the deficit sit with national governments and parliament, “not necessarily in the hands of the ECB.” He said the ECB does have crisis mechanisms for periods of severe market stress, but said these are only activated once a country has taken action of its own.
(Reporting by Leigh Thomas; Editing by Charlotte Van Campenhout and Toby Chopra)
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