The governor of the Banque de France has cautioned that the country faces the risk of being “strangled by interest rates” unless decisive action is taken to address its public finances. Emmanuel Moulin emphasized that France, as the Eurozone’s second-largest economy, could regain investor confidence if it follows through on fiscal consolidation measures.

Speaking amid recent turbulence in sovereign debt markets, Moulin highlighted that France’s situation differs from that of Greece during the Eurozone crisis. He stressed that if the government enacts a budget this year aimed at reducing spending and narrowing the deficit as proposed, markets would likely respond positively to such concrete steps.

“If we do not act, there is indeed a risk of being gradually strangled by rising interest rates,” Moulin said, adding that it is essential for the nation to maintain control over its economic destiny.

Last week, the French government unveiled a budget plan including €43 billion in spending cuts and tax increases, intending to tackle a deficit forecasted to reach 5.4 percent of GDP by the end of 2024. However, the government’s lack of a parliamentary majority has raised doubts about the plan’s prospects. Opposition parties are expected to challenge unpopular elements such as the suspension of automatic inflation-indexed pension increases and a partial freeze on civil service salaries.

The broader environment of rising borrowing costs worldwide, influenced by increased energy prices linked to the war in Iran, has contributed to elevated inflation and higher bond yields globally. French government bond yields have experienced sharp increases, rising more than those of any other G7 country since the conflict began. Investors remain concerned about the government’s ability to control the deficit amid political uncertainty ahead of the upcoming budget debates and next year’s presidential election.

The sell-off in French debt intensified last week, pushing yields on 10-year government bonds close to 5 percent on Friday before they slightly retreated to 4.86 percent. The spread between French and German 10-year bond yields, an indicator of perceived risk premiums, briefly exceeded 1.5 percentage points. These developments have sparked discussions among analysts about possible interventions by the European Central Bank (ECB) to prevent a fragmentation of the bloc’s financial markets.

Moulin dismissed such speculation as premature, stating that reliance should be placed on domestic solutions rather than external support. “The safety net lies closer to home. It lies in the capacity of the French and their elected representatives to recognise the need to repair public finances,” he said.

Both the ECB and the US Federal Reserve have implemented recent rate hikes in response to inflation pressures exacerbated by the Iran conflict. Each central bank is expected to reassess monetary policy and announce their next moves later this month.