France’s public debt will climb to 119.3 percent of gross domestic product in 2026 and 121.7 percent in 2027, reaching levels not seen since 1978, according to the country’s finance ministry. The warning arrives as borrowing costs surge and political gridlock complicates budget negotiations.
France Borrowing Costs Climb to Multi-Year Highs
The French Treasury faced escalating interest rates during a benchmark government bond auction, underscoring severe market anxiety over the nation’s public finances. The yield on 10-year OAT bonds rose to 4.23 percent at the monthly auction, jumping sharply from 3.90 percent in August. That figure marks the highest borrowing rate recorded since the 2008 global financial crisis.
Just seven months prior in February, the same 10-year bonds traded at 3.45 percent. The rapid climb reflects mounting investor demand for a higher risk premium as geopolitical tensions lift global energy prices and fuel expectations that central banks will maintain restrictive monetary policies to cool inflation.
Debt Projections Reach Historic Highs Since 1978
France’s finance ministry announced that the country’s debt mountain will reach unprecedented heights due to a persistent spending deficit. A ministry source told reporters that public debt will climb to 119.3 percent of GDP in 2026 and hit 121.7 percent in 2027. Statistics institute Insee confirmed those figures represent the highest debt levels recorded since 1978.
Those ratios stand at more than double the 60-percent reference limit mandated for European Union member countries under the Stability and Growth Pact. The finance ministry characterized the ongoing debt expansion as automatic, driven directly by a deficit that remains high.
EU rules dictate that a member state’s public deficit should not exceed 3 percent of GDP. Last year, France registered a deficit of 5.1 percent of GDP, and government forecasts indicate the figure will rise to 5.4 percent. Consequently, France has spent the past two years under special EU monitoring.
Bond Risk Premium Over Germany Hits 2012 Peaks
Investor unease has driven the yield spread between French and German 10-year debt past a critical threshold. The premium France pays to borrow compared to Germany widened to 104 basis points, marking the first time the spread has exceeded a full percentage point since the euro zone debt crisis in 2012.
The current spread has doubled since a snap parliamentary election resulted in a fractured legislature, severely complicating deficit-reduction efforts. Compounding the market pressure, yields on French government bonds recently traded above those of Greece, which required massive EU bailouts following the 2008 financial crash. French 10-year yields stood at 4.223 percent compared to 4.057 percent for Greek debt.
Market analysts note that France is now paying a higher borrowing premium than Italy, a nation carrying heavier debt loads and lower credit ratings. France has real problems, and that they’re not going to be solved anytime soon,
said David Zahn, head of European fixed income at Franklin Templeton, describing the significance of the 100 basis-point spread over Germany.
Political Stalemate Threatens Sebastien Lecornu’s Budget
Sebastien Lecornu faces intense political hurdles as he attempts to negotiate a draft 2027 budget. The government aims to shrink the deficit from 5.4 percent down to 5 percent through €54 billion in difficult spending cuts. Opposition factions are expected to challenge those measures, raising the risk of a government collapse.
The draft budget measures have been submitted to an independent fiscal watchdog, the High Council of Public Finances, to evaluate their macroeconomic viability. Meanwhile, escalating debt-servicing expenses have transformed into the government’s largest budgetary expenditure as officials refinance billions in COVID-era loans secured at ultra-low rates.
Debt-servicing costs are projected to run €4.5 billion higher than anticipated this year due to elevated interest rates, with an additional €10 billion increase expected next year. Political risks loom larger as the nation approaches next year’s presidential election. Frontrunners from the far-right, including Marine Le Pen, and the far-left, including Jean-Luc Melenchon, advocate policies that investors warn could strain public coffers further.
At some point, unless you think they’re on a road to something really horrible, you’ve got to make the judgement that there’s enough compensation for taking on the sovereign risk.
Chris Jeffery, head of macro strategy at L&G