France could enter the “danger zone” for international lenders if its budget deficit surpasses 5% of GDP in 2026, warned Francois Villeroy de Galhau, Governor of the Banque de France and a European Central Bank (ECB) policymaker. Speaking on BFMTV, Villeroy emphasized that exceeding this threshold could significantly raise concerns among investors and credit rating agencies, putting pressure on the country’s fiscal credibility.

Deficit Thresholds and Economic Implications

Villeroy stated:

“I must say with some seriousness that with a deficit of more than 5%, France would be in the red zone, in the danger zone as far as international lenders are concerned.”

The warning comes amid ongoing political uncertainty in France, where lawmakers failed to pass the 2026 national budget by the end of 2025. Emergency stop-gap legislation was enacted to maintain government operations, but debates resumed on January 13, 2026. Analysts note that the government may need to invoke special constitutional powers to push the budget through, given the deadlock in parliament.

Growth Outlook and Resilience

Despite these fiscal challenges, Villeroy highlighted that France’s economy is showing resilience, with moderate growth expected.

• 2025 GDP growth forecast: 0.9%
• Political uncertainty is estimated to reduce growth by at least 0.2 percentage points, according to the latest Bank of France business sentiment survey

These figures suggest that, while the French economy faces short-term pressures, structural fundamentals remain relatively solid, particularly within the eurozone’s second-largest economy.

Risks for France and the Eurozone

A budget deficit above 5% could lead to several economic consequences:

• Increased borrowing costs for the government
• Greater scrutiny from international lenders and credit rating agencies
• Potential negative spillovers for the eurozone, given France’s central role in regional fiscal stability

Villeroy’s warning underscores the broader challenge faced by France in balancing political gridlock with fiscal discipline, especially as the government seeks to maintain spending without triggering market alarms.

Political and Legislative Context

The inability to pass the 2026 budget on schedule reflects growing political fragmentation in France, with lawmakers divided on fiscal priorities. The use of emergency measures indicates that short-term governance solutions may be insufficient to address structural fiscal concerns. Financial markets and policymakers alike are closely watching developments, as the budget deficit trajectory will influence both domestic economic stability and France’s credibility on international capital markets.

Outlook

As 2026 unfolds, France will need to carefully manage its public finances to avoid breaching the 5% deficit threshold. Analysts predict that timely legislative action, combined with prudent fiscal measures, will be critical to maintaining confidence among investors and ensuring the country does not enter the danger zone highlighted by Villeroy.