Bank of France governor François Villeroy de Galhau has outlined a plan for fixing the country's finances and urged prompt action to restore credibility, especially as President Emmanuel Macron remains uncertain about appointing a new prime minister. 

The central banker emphasised that the euro area's second-largest economy must honour its European Union commitments and called for efforts to reduce spending and “overcoming the taboo” to increase taxes.

“It’s essential to provide clarity and credibility quickly. Credibility supposes truth and a certain number of compromises, which aren’t facile solutions,” the governor said in an interview with Le Point magazine.

France’s borrowing costs relative to other European countries have surged since Macron dissolved parliament in June and called for snap elections, Bloomberg reports.

The uncertainty surrounding the budget has increased, as no single party has secured a majority capable of governing independently, and Macron has yet to appoint a new prime minister and government.

Even before the elections, France was grappling with increasing fiscal challenges as weaker-than-expected tax revenues hindered efforts to reduce the budget deficit. Earlier this week, the outgoing government cautioned that the fiscal shortfall could widen further if spending is not controlled.

Villeroy indicated that new EU regulations will necessitate an adjustment of approximately €20 billion annually. He noted that this adjustment would gradually reduce the deficit below the European limit of 3% of economic output, though it may not be achieved by the 2027 deadline set by the current government.

“There will need to be a realistic compromise on the calendar that is compatible with the new European pact,” he said, referring to the revised fiscal rules agreed upon by EU member states last year.

Villeroy, who was an adviser to finance ministers in the left-wing government of Prime Minister Lionel Jospin in the late 1990s, stated that the election results signal a need for “a form of republican unity, including taking action.”

“Dialog on fundamentals, compromise to get concrete results can work in France. Respecting French people is also a question of telling them the truth and reminding people of the demands of reality,” he stated.