FRANCE: Volatility In 10-year OAT/Bund Spread As Lecornu Interview Digested

French PM Lecornu has given a substantial interview to Le Parisien (paywalled link here)

Some volatility in the 10-year OAT/Bund spread as this wide-ranging interview is digested. The spread fell below 81bps as initial headlines filtered through, but that has since been pared.The spread returns to ~81.5bps, some 1bp narrower on the session

• It's notable that the 2026 deficit target of 4.7% isn't that different to Bayrou's 4.6% proposal. It remains to be seen if Lecornu will gain enough support for his policies to get such a proposal through the National Assembly. He has already rolled back the decision to abolish two public holidays, and in this interview pushes back against ideas of a wealth tax (a policy advocated for by the Left).

A few highlights:

Q: How will you build the budget?

• A: "I'm starting from scratch, which explains this delay. I will present a budget that takes into account the initial consultations I have had with all the trade union and employer organizations, and political parties. It is this budget that will then be debated and amended by Parliament in the fall. 

Q: So what are your priorities?

• A: "First, reducing spending: public money is more precious than ever. I will therefore propose a reduction of six billion euros for the State and its standard of living."...."For next year, resources devoted to pensions will increase by six billion euros, those for health will increase by five billion euros."

Q: So we remain on a trajectory of 4.6 % in 2026 and 3 % in 2029?

• A: "Returning to 3% in 2029 is certainly our commitment to our partners, but it is above all the threshold that allows us to reduce the debt and avoid paying ever more interest. This is the condition for preserving public policies that are essential for the French people. I will present a robust project at around 4.7%, given that I have decided not to force the French to give up two unpaid public holidays . This is fully compatible with the objective of 3% in 2029. Here again, in the end, it is Parliament that will decide."

Q: François Bayrou called for €44 billion in savings. Will it be less with you?

• A: "I will present a transparent budget, with the evolution of expenditure, the evolution of revenue and the reduction of the deficit."

Q: Let's get to the main demands of the unions and the left. Is the Zucman tax a yes or a no?

• A: "There is a political and societal demand for greater tax justice, particularly to restore our public finances. We cannot dismiss this debate out of hand. Second, is the Zucman tax the right answer? The only answer? Personally, I don't believe so for two reasons."

Q:  There is some talk of a return to the wealth tax, which was abolished in 2017. Is this something that is being seriously considered?

• A: The government is not considering it .

Q: "Another explosive topic: pension reform. Your opponents are asking you to abandon it. Are you ready?"

• A: "do I consider the Borne reform to be complete? The answer is no. Otherwise, there would have been no conclave , and the issues of arduous work and women would not still be on the table."

Q: So you are ruling out using Article 49.3?

• A: "I hope I am not forced to do so. The debate must take place in Parliament, and I will participate in some of the discussions myself