Lagarde urges France to tackle debt through fiscal consolidation

European Central Bank President Christine Lagarde said on Wednesday France must address its debt and deficit through fiscal consolidation, while citing an IMF forecast for 1.1% euro-area GDP growth this year, ETMarkets.com reported.

The remarks matter because the ECB has raised interest rates twice over the past four months, and markets expect another increase in December, according to the report.

Speaking at a CNN event in Bangkok during the IMF and World Bank annual meetings, Lagarde said France faced market pressure tied to its own fiscal position, the report said.

Her comments played down speculation that the ECB could use bond purchases to ease pressure on French borrowing costs. The report said investors and analysts had discussed whether the central bank might deploy its Transmission Protection Instrument, or TPI.

The TPI is an ECB crisis tool that can allow purchases of government debt when the central bank judges market moves to be unwarranted, disorderly and a threat to monetary-policy transmission across the euro area. Lagarde’s message, as reported, was that France should first rebuild investor confidence through budget measures.

French government bonds have been among the hardest hit in a global bond selloff, according to the report. Investors are concerned that political manoeuvring before next year’s presidential election could weaken efforts to rein in France’s high budget deficit.

Lagarde also addressed inflation, saying elevated euro-area price growth had been driven mainly, though not entirely, by an energy-price surge linked to the Iran war, ETMarkets.com reported. The ECB has not yet seen clear evidence of second-round effects, meaning higher energy costs feeding into broader prices and wages.

The central bank is watching early indicators, including trade-union demands in wage negotiations, to judge whether inflation pressures could become more persistent, according to the report. Lagarde said policymakers needed to anticipate such effects rather than wait until they were fully visible.

On growth, Lagarde described the IMF’s 1.1% forecast for euro-area gross domestic product this year as modest but not unfavourable, according to the report. The euro area is a 20-country currency bloc, so even modest growth affects a large share of European demand, public finances and bank balance sheets.

She also cited German government spending on infrastructure and military investment as support for activity, the report said. That fiscal impulse is one counterweight to uncertainty over energy costs and higher borrowing costs.

Next policy tests

In December, markets expect the ECB to raise interest rates again as policymakers assess inflation and the economic effects of higher energy prices, according to the report. The checkable signal is whether the Governing Council confirms that market pricing or pauses after two increases in four months.

In 2027, France’s presidential election will test whether political positioning complicates deficit-reduction efforts, according to the report. Before then, investors will be watching whether the government can present fiscal measures credible enough to stabilise bond prices and contain borrowing costs.

Source: news report, ETMarkets.com, Oct. 14, 2026