France’s borrowing costs have climbed to their highest since 2002, with the 10-year government bond yield up more than 130 basis points since June and topping 4.9%, Al Jazeera reported on 20 October. National debt is about 3.6 trillion euros ($4 trillion), or 119% of GDP, up from 98% in 2019, and the 2026 deficit is expected at 5.4% of GDP. Prime Minister Sébastien Lecornu, appointed by President Emmanuel Macron, is fighting for a budget in a fragmented National Assembly. The question is whether France faces a debt crisis or a political one.
The case that the alarm is justified rests on the trend. The deficit of 5.4% of GDP is well above the EU average of just over 3%, a gap of more than two percentage points, government spending is about 57% of GDP, second only to Finland among OECD countries, and public pensions cost 14% of GDP. Growth is forecast at 0.4% this year, after 0.9% in 2025, and over 2000 to 2025 France’s growth was 59% of the OECD average. Next year’s presidential election raises the political stakes. The government’s budget for next year includes 54 billion euros ($61 billion) in savings, but it is opposed by Marine Le Pen of the National Rally and Jean-Luc Mélenchon of France Unbowed, the leading candidates in next year’s presidential election, and the government could use a constitutional clause to bypass parliament. Hundreds of thousands of protesters have opposed the cuts, and some have rioted and looted.
The case that the alarm is overstated starts with comparisons. Italy’s debt stands at 140% of GDP, though its deficit is about 3% of GDP, and Japan’s debt is above 200% of GDP. Antonio Fatas, a professor at INSEAD, said: “Are the French numbers much worse than other countries? No, but marginally they are worse.” Victor Lequillerier, president of BSI Economics, said: “The sustainability of sovereign debt is rarely determined by its absolute level alone.” Andrew Kenningham of Capital Economics said “the total debt burden that a government can support depends on quite a few things,” while Alex Dryden of the SOAS Centre for Sustainable Finance said that tackling the issue “would resolve much of France’s fiscal burden.”
The outcome matters across Europe because the debt has risen by 21 points of GDP since 2019, and a rise of more than 130 basis points in a few months shows how quickly markets can reprice it. The same pattern of rising yields is visible in other markets: the US 10-year yield rose above 5% this month, its highest since 2002, and Japan’s central bank raised rates to a 31-year high. If the government cannot pass a budget, higher costs would feed into the interest bill, which would make the next budget harder.
France’s debt is high but not unique, and the more pressing problem is whether its politicians can agree a budget, with the 10-year yield above 4.9% and the deficit at 5.4% of GDP. Bond markets have started to price that uncertainty.