France's National Assembly has unanimously rejected the government's 2027 budget, scrapping a €54 billion consolidation plan and deepening market fears about the country's debt.

Deputies voted 458 to 0 against the revenue section of the bill on the evening of Wednesday 4 November. The spending section will not be debated, and the original text now goes to the Senate on 20 November. With the plan defeated, France's debt is projected to reach 121.7% of GDP next year, against a deficit of about 5% of GDP.

The €54 billion package of spending cuts and tax rises was meant to narrow a deficit that grows costlier as bond yields rise. France's 30-year bond yield stands at about 5.33%, the highest in the Group of Seven, and the gap between French and German 10-year yields widened to 178 basis points last month, its widest since the 2012 eurozone debt crisis.

Markets steady despite the vote

Bond markets took the rejection in their stride. The 10-year OAT closed at 4.88% on 4 November and the spread over German Bunds narrowed to 156 basis points, from 161.8 the day before, tightening to 148.2 on 5 November as the OAT eased to 4.75% against a Bund yield of 3.27%.

Ratings pressure is building. Fitch affirmed France at A+ on 30 October but cut its outlook to negative, forecasting a 2027 deficit of 5.5%, above the 5.0% target, with debt at about 124% of GDP by 2028 and interest payments at 3.3% of GDP. S&P reviews France on 27 November.

Protests swell

The vote came as protests against the austerity plan drew about 600,000 people onto the streets on 5 November, the Interior Ministry said, the largest turnout in recent months.