The surge in debt is described by ministry sources as an “automatic” consequence of a deficit that remains high. Last year, the general government deficit stood at 5.1% of GDP, and the current government forecasts this figure will rise slightly to 5.4% this year. While the administration expects the deficit to narrow to 5% next year, it will remain nearly double the sustainable threshold. France is currently the third most indebted country in the eurozone, trailing only Greece and Italy, while peers such as Spain and Portugal have managed to bring their debt-to-GDP ratios below 100% and 90%, respectively.
The fiscal strain is compounded by structural imbalances in public spending. Over the past 25 years, public spending has risen to 57% of GDP, which is eight percentage points above the European average. A significant driver of this cost is the public sector workforce, which has grown by one million employees since 1997. Over that same period, public sector staff numbers increased by 23%, outpacing a 15% rise in the general population. This expansion has contributed to a primary deficit—excluding interest charges—of 2.9% of GDP, the highest in the euro area.
In response, Prime Minister Sebastian Lecornu outlined a draft 2027 budget that includes adjustments and spending cuts worth €54 billion ($62 billion). The package has been submitted to the High Council of Public Finances (HCFP), an independent fiscal watchdog, to evaluate its macroeconomic viability. However, with presidential elections scheduled for next April to succeed Emmanuel Macron, the political landscape remains volatile. Lecornu has left certain sensitive measures, such as proposed reductions in tax breaks for pensioners, to parliamentary decision-making, highlighting the difficulty of implementing unpopular austerity measures in an election year.
Market observers and economists argue that France’s current fiscal position is in a “uniquely concerning state.” The lack of a credible path toward deficit reduction has led some bond market investors to price in the possibility of external support. French 10-year bond yields are currently trading at a spread of 0.85 percentage points over German government bonds. This spread has widened from a range largely below 0.5 points in the decade leading up to 2024, though it remains lower than the 1.85-point spread seen for UK government bonds. Some analysts suggest that the relatively low spread reflects an expectation that the European Central Bank (ECB) or German benevolence might prevent a sovereign crisis, a view critics describe as an illusion.
The risk of a “negative spiral” is growing. If France cannot restructure its finances, progressively higher interest costs will further constrain growth and limit the state’s ability to manage new debt. This dynamic could have considerable implications for financial stability within the monetary union. The breakdown in recent Franco-German cooperation, such as on joint industrial projects, suggests that Berlin is no longer willing to subsidize French fiscal excesses. Consequently, the burden of restoring balance falls squarely on the next French government, regardless of which party wins the upcoming presidential election.
The economic environment adds further pressure. The French economy is currently facing headwinds from global uncertainty regarding US tariff measures, as well as domestic shocks from extreme heatwaves and wildfires. Without a fundamental overhaul of public finance, the country risks being drawn into a cycle where slowing growth exacerbates the debt burden, potentially triggering a broader crisis in the eurozone’s second-largest economy.
The next critical juncture is the evaluation of the draft budget by the HCFP and the subsequent parliamentary debates in the run-up to the 2027 fiscal year. The outcome of these negotiations will determine whether France can begin to stabilize its debt trajectory or if it faces a prolonged period of fiscal distress.
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