PARIS, Dec 19 (Reuters) - France's 2026 budget faces a make-or-break moment on Friday as lawmakers scramble to avert a fiscal deadlock in last-ditch talks to agree a compromise bill.
A joint committee from both the National Assembly and the Senate is to meet to hammer out a final budget text that would then be put to votes in both houses next Tuesday.
Failure would force Prime Minister Sebastien Lecornu to seek emergency legislation to allow spending, tax collection and borrowing in the new year until a proper budget can be agreed.
However, such a law would only offer a short-term solution, the governor of France's central bank, Francois Villeroy de Galhau, said on Friday.
"The emergency legislation does not make any choice. But we need, for example, to spend more on defence," Villeroy told France Inter radio.
A special law will also lead to a deficit that is significantly higher than what is desirable, he added, "because it does not include any cost-saving measures, nor does it include any tax measures".
GOVERNMENT INSISTS ON FISCAL DEFICIT UNDER 5%
Investors and ratings agencies are scrutinising France's finances as Lecornu struggles to rein in a budget deficit running at 5.4% of output this year - the euro zone's highest.
The minority government insists the budget must keep the fiscal deficit to less than 5% next year, having already given ground on its original target of 4.7% with costly concessions to win over Socialist lawmakers.
The Senate approved a 2026 budget on Monday with a fiscal deficit of 5.3% after conservatives blocked tax hikes to offset a bigger-than-planned funding shortfall in the social security budget that the lower house had approved.
VOTE LOOMS IN FRACTICIOUS PARLIAMENT
Ahead of Friday's talks, Socialists in the lower house demand that the wealthy pay more, while conservatives say they will reject tax hikes.
Even if a deal emerges on Friday, it could still be torpedoed in a vote before the lower house, which has the final say.
In that case too, the government would likely submit an emergency rollover law to avoid a U.S.-style shutdown, before reviving more permanent budget legislation early next year.
Lecornu's minority government has little room for manoeuvre in France's fractious parliament, where budget battles have already toppled three governments since President Emmanuel Macron lost his majority in a 2024 snap election.
Uncertainty around France's budget is costing the country 0.2 percentage points in growth, Villeroy said.
(Reporting by Leigh Thomas, Sudip Kar-Gupta and Dominique Vidalon, editing by Ed Osmond and Gareth Jones)
