France’s Debt Problem: Economic Strain Meets Political Deadlock

Louis Fritsch

By the end of Q3 2025, France’s public debt (the official general-government measure published by INSEE) stood at €3,482.2bn or 117.4% of GDP. The crisis stems from the collision of two forces: economic conditions that keep pushing debt higher (persistent budget deficits, weak growth and rising interest costs) and a political paralysis that repeatedly blocks the reforms needed to arrest it.

The graph below illustrates France’s increasingly troubling debt trajectory. Since the early 2000s, the debt-to-GDP ratio has trended upward, with two pronounced jumps during the 2008-09 global financial crisis and the COVID-19 pandemic.

The blue line shows government debt as a percentage of GDP.

Source: National Accounts - INSEE, DGFiP, Banque de France.

The question now is which economic factors are driving this trajectory.

First, deficits remain elevated: INSEE reports a general government deficit of 5.5% of GDP in 2023 and 5.8% in 2024. The deficit is largely driven by persistently high public expenditure, which sustains France’s generous social security system. Government spending was 57.3% of GDP in 2024, and has averaged 54.11% of GDP from 1978 to 2024. These figures sit well above the EU member-state average of 45.1% of GDP (as of December 2024).

Second, France is experiencing persistently weak GDP growth. This matters because when growth is weak, tax revenues tend to rise more slowly, while spending pressures often remain unchanged or increase. The result is a tendency for fiscal balances to deteriorate and for the deficit to widen. This trend is illustrated in the graph below, which draws on World Bank-compiled data to show France’s weak GDP growth since the early 2000s.

The blue line shows GDP growth (in percent).

Source: Country official statistics, National Statistical Organizations and/or Central Banks; National Accounts data files, Organisation for Economic Co-operation and Development (OECD); Staff estimates, World Bank (WB).

Third, France’s debt-servicing costs are rising because higher interest rates and heightened fiscal concerns have increased the cost of borrowing. France’s 10-year yield is currently 3.3%, around 56 basis points above Germany’s. This France-Germany spread is commonly interpreted as a market gauge of investor confidence in France’s public finances and perceived risk relative to the euro-area benchmark. In other words, French government debt is viewed as riskier than Germany’s, so investors demand a higher yield as compensation for the additional fiscal and political risk they perceive. This creates a vicious cycle: as markets demand a higher premium to lend to France, the state’s interest bill rises, fiscal pressures intensify, and investor confidence can weaken further.

Taken together, the economic pressures described above are reinforcing one another: France continues to run a primary deficit, growth is too weak to offset debt accumulation, and higher borrowing costs are raising the interest burden on an already large debt stock. The combined effect is sustained upward pressure on the debt-to-GDP ratio.

The question now is which political factors are hampering efforts to address this economic crisis.

France’s debt troubles are not just a question of fiscal arithmetic, they also reflect a governability problem that makes it difficult to enact and sustain the large-scale reforms needed to restore debt sustainability. The snap legislative elections triggered by President Macron’s June 2024 dissolution of the National Assembly produced a tripolarised chamber, with three major blocs and no governing majority. Different ideologies drive sharply different visions for managing France’s public finances across the New Popular Front, Ensemble and the National Rally.

The process that led to the 2026 budget bill’s adoption demonstrates the extent of this paralysis. As 2026 began, France still had no adopted budget. After months of debate left the National Assembly deadlocked, Prime Minister Lecornu therefore invoked Article 49.3. This controversial (though constitutional) procedure allowed the bill to be deemed adopted without a parliamentary vote.

The focus now shifts to whether the 2026 budget bill delivers meaningful fiscal adjustment. It targets a modest deficit reduction from 5.4% of GDP in 2025 to 5.0% in 2026, but the adjustment is largely delivered through a limited package of near-term savings and revenue measures, rather than the kind of deep structural reforms that would lock in a sustained decline in the deficit.

On the one hand, with a deeply rooted attachment to public services and social benefits, sweeping austerity-style cuts to bring spending closer to EU norms are politically difficult to implement and sustain. On the other hand, as of 2024, France already has the EU’s second-highest tax-to-GDP ratio (45.3%, behind Denmark). This leaves limited scope to raise taxes further without potentially weighing on growth. Against this backdrop, President Macron has presented the 2023 pension reform as a central lever to contain expenditure growth over the medium term. France’s pension bill is exceptionally large. In 2022, France spent 14.7% of GDP on pensions, well above the EU average of 12.2%.

Each blue bar shows pension spending as a share of GDP for a given EU member state.

Source: Eurostat.

France’s demographics will keep the pension arithmetic unfavourable: as the population ages, fewer workers will be supporting a growing number of retirees. The proposed 2023 reform was meant to respond to this ageing-driven squeeze by phasing the legal minimum retirement age up from 62 to 64, thereby extending working lives and bolstering contributions as the retiree population grows.

However, this structural reform (designed to address longer-term pressures) was not included in the 2026 budget bill. BBC reporting in October 2025 indicated that Socialist backing for the government’s 2026 budget plans hinged on major concessions, including suspending Macron’s 2023 pension reform. With a fragmented National Assembly and no governing majority, securing that support was key to reducing the risk of a no-confidence vote toppling the government.

This episode highlights France’s broader governability and reform constraints, which limit the government’s capacity to respond decisively to the debt problem. It is likely to unsettle investors, who place a premium on political stability and credible policy delivery.

It is also worth noting that France is under growing pressure to increase defence spending amid a deteriorating security environment. Defence spending is set to rise by €6.7bn in 2026 compared with 2025. Macron said France’s defence spending will be twice its 2017 level by 2027, to strengthen France in an “age of predators”. This is another political force that requires increased government spending, making debt stabilisation harder.

To conclude, the fragmented National Assembly is making it difficult to pass major structural reforms. This leaves France reliant on incremental measures rather than a decisive adjustment. The next clear opportunity for a broader shift is likely to come with the 2027 presidential election and the subsequent legislative elections.

References

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