Budget or Breakdown? France Faces Its Biggest Fiscal Test in a DCAC40 Index CashFPMARKETS:FRA40InversionesargentinaFrance at a Fiscal Crossroads – Pre-Budget 2025 FR40 FRA40 France, Europe’s second-largest economy, faces slow growth, high debt (113% of GDP), and a -5.5% deficit. Political fragmentation makes meaningful reform difficult, and the 2026 budget has not yet been proposed. If no agreement is reached on the 2026 budget — which is unlikely to include real deficit reduction — the 2025 budget could be used instead. The problem? The 2025 budget failed to gain political and social support at the time. Overview of the 2025 Budget The 2025 budget aimed for gradual fiscal consolidation, combining: Selective tax increases Spending cuts in sensitive areas, such as higher education, transport, and subsidies Targeted investments in strategic sectors like infrastructure, energy, and defense Technically, it was not an extreme austerity plan, but it only marginally reduced the deficit. The core challenge remains political and social consensus for sustained spending cuts. Potential Outcomes 1️⃣ Base Case (likely) -Moderate adjustments implemented with political continuity -Deficit reduction proceeds slowly; markets may react positively -Social tensions in affected sectors persist, but widespread unrest is unlikely -issue: no structural consensus on spending cuts 2️⃣ High-Risk Scenario -Opposition and unions block reforms → potential protests in universities, transport, and public administration -Parliamentary or judicial delays; rising political polarization -Market confidence declines → higher country risk, capital outflows, increased pressure on sovereign debt -Government may need to renegotiate or soften measures, diluting credibility -Credit Rating Perspective Credit agencies are watching closely: Fitch: downgraded France to A+ in September, citing the lack of a clear debt stabilization plan S&P Global: maintains AA- with a negative outlook, warning that public spending remains among the highest in Europe Moody’s: cut to Aa3, noting fiscal deterioration and political instability Summary: The 2025 budget, set to be discussed on Monday, seeks to reduce the deficit through selective adjustments and new revenue sources, but faces considerable parliamentary opposition and a socially sensitive environment. While passing it could stabilize markets, the lack of structural consensus on spending cuts keeps the risk of political gridlock, social tension, and further credit downgrades very real.