Bank of France head hopes political gridlock clears by September for budget vote

The Paris Europlace International Financial Forum in Paris

By Sudip Kar-Gupta and Dominique Vidalon

PARIS (Reuters) - Bank of France Governor François Villeroy de Galhau said on Thursday he hoped the country's political gridlock would be resolved by September, when parliament must vote on the budget of the euro zone's second-largest economy.

Last Sunday's parliamentary election plunged France into uncharted waters, with three politically divergent blocs emerging and no obvious path to forming a government.

The New Popular Front (NFP), a hastily assembled alliance of the hard-left France Unbowed party and the Socialist, Green and Communist parties, unexpectedly won the most seats in Sunday's vote but not an outright majority.

"The budget happens at the end of September. I hope that between then and now we can remove the element of uncertainty and that we will have more political clarity, but clearly this is not in my domain," Villeroy told radio network France Info.

Villeroy, who is also a member of the European Central Bank, added that it was vital for the French government to reduce the country's deficit.

The French government expects to cut its public sector budget deficit from 5.1% of economic output in 2024 to 4.1% in 2025, with the aim of meeting the European Union's ceiling of 3% by 2027.

On Wednesday, the Bank of France said the economy should grow by 0.1% in the second quarter, at the top end of its forecasted range.

Villeroy said that while there were positive aspects to the overall economic situation, such as a drop in the rate of inflation, which he expected would drop towards the bank's 2% targeted level, the outlook remained uncertain.

"I think that if we had to give a resume of the overall picture of the French economy today, it is resisting well but remains fragile," he said.

Finance Minister Bruno Le Maire told reporters on Thursday that meeting the European Union's ceiling of 3% by 2027 was crucial for France in order "to retain the confidence of the markets" and "preserve its credibility in the euro zone".

"My priority is to guarantee that we meet in 2024 the 5.1% deficit (ratio)," he said, adding this would be achieved through total savings for the year of some 25 billion euros.

It will be up to the new government to define savings and receipts for the 2025 budget, he said, adding that restoring public finances required savings instead of spending.

(Reporting by Benoit Van Overstraeten and Sudip Kar-Gupta; editing by Dominique Vidalon, Bernadette Baum and Jason Neely)