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France’s budget faces parliamentary hurdles as investors cautiously optimistic about its approval and skeptical about the country’s ability to improve its finances quickly. The government’s plan for 60 billion euros in spending cuts and tax hikes aims to tackle a deficit expected to exceed 6% of GDP this year. Market reactions remained subdued, with French bonds trading at a steady yield premium over German bonds and Stocks in line with peers. While analysts anticipate the budget’s approval, potential volatility looms as parliament debates the details. Opposition parties hold key leverage in the process, raising concerns about the budget’s smooth passage. The French/German bond spread reflects this uncertainty, nearing summer highs amid fears over the nation’s financial stability.

Marine Le Pen’s National Rally party’s stance on the budget remains crucial, with concerns about potential obstacles to its approval. Despite initial criticisms, the far-right party may opt for strategic cooperation to appear responsible ahead of possible elections next year. The bigger challenge lies in France’s ability to meet its deficit reduction targets, with market skepticism about the government’s optimistic projections. Fiscal watchdog warnings and reliance on revenue increases raise doubts about the budget’s effectiveness in addressing the country’s financial woes. Moreover, economic headwinds and growth concerns add to the risks of the budget plan.

Credit rating agencies’ reviews could further impact France’s financial outlook, with Fitch expected to downgrade its AA- rating. However, market pricing already reflects anticipated downgrades, making immediate rating actions less likely. France’s escalating bond yields compared to Spain indicate growing concerns about its status in the Eurozone. Long-term reform prospects hinge on the government’s stability and credibility in addressing the deficit over the next decade. Uncertainty looms over the government’s longevity, casting doubts on its ability to deliver on its fiscal promises.

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