Deeply indebted, politically trapped in a standoff between extremes and led by a government without a parliamentary majority: These are the defining features of France’s current predicament.
If, in response to nationwide proteststhe government plans to provide €4 billion ($4.48 billion) in low-interest loans to renovate schools by 2030 and allocate a further €1 billion to universities by 2029, it is promising money the state simply does not have.
France’s public debt stands at around 120% of gross domestic product (GDP). By comparison, Germany’s debt-to-GDP ratio is roughly 65%, despite its €600 billion investment package for infrastructure and defense.
Germany still enjoys the highest possible AAA credit rating. France, by contrast, is rated AA, A+ or Aa3, depending on the credit agency. While Germany’s outlook is consistently rated as stable, several agencies have assigned France a negative outlook.
As a result, the French government must pay higher interest rates on its borrowing than Berlin. The risk premium over German government bonds, known as the spread, is now at its highest level since the financial crisis. France pays nearly 1.6 percentage points more in interest than Germany on 10-year bonds.
A barometer of France’s public finances
The spread acts as a kind of fever gauge for bond markets, explains Friedrich Heinemann, an economist at the Leibniz Center for European Economic Research (ZEW) in Mannheim.
“This fever gauge then forces a change of course. If the spread rises too sharply, France’s financing conditions come under pressure, and anyone in France who needs a loan has to pay higher interest rates. Banks then get into trouble, and the crisis escalates further,” Heinemann told DW.
“This could then slide towards a financial crisis, which would finally send a clear signal to everyone: Things cannot continue like this unless you are prepared to risk a genuine economic collapse,” he explained.
Landry Charrier, a researcher at the University of Bonn’s Center for Advanced Security, Strategic and Integration Studies, however, does not expect France’s debt-fuelled spending spree to end anytime soon.
“French people are aware of the country’s high public debt. But debt remains an abstract concept if its consequences are barely felt in everyday life. According to INSEE (the French national statistics agency — the ed.), 56% of the population receive more in government benefits and services than they pay in taxes and social contributions. The majority therefore have a tangible interest in maintaining the status quo,” Charrier told DW.
For more than half a century, France has regularly spent more than it collects in tax revenue. The last time it balanced its national budget was in 1974.
Echoes of the eurozone crisis
France last paid a similarly high-risk premium at the end of 2011, during the eurozone debt crisis. What is particularly striking is how quickly it has risen: Since June 2026, the spread over German government bonds has more than doubled.
The main driver is not so much the general level of interest rates. Rather, it’s the growing risk premium investors demand in response to high debt levels, political instability, large budget deficits and the recent unrest.
The higher the interest rates, the larger the share of the national budget that must be devoted to debt servicing alone. France is expected to pay more than €79 billion in interest on its total public debt in 2026. That figure is projected to exceed €91 billion in 2027 and could reach between €125 billion and €132 billion by 2030.
These figures include the costs incurred by social security funds and local authorities. The central government’s interest bill alone is currently estimated at €62.6 billion by the Agence France Tresor, a French Treasury agency.
In the coming years, France will have to refinance large amounts of outstanding bonds that were issued when interest rates were at historic lows. At the same time, the country’s substantial budget deficit means it must take on additional debt.
A warning shot for Germany
The trend of rising interest costs is also affecting Germany. The ZEW’s Heinemann has calculated that German interest payments are likely to increase sharply by the early 2030s.
“For the federal government alone, which has so far paid around €30 billion, the figure will triple within a few years as both debt and interest rates rise. And it won’t stop there — it will exceed €90 billion. Reaching €100 billion in annual interest payments in the federal budget is then no longer far off,” warns the Mannheim-based economist.
In France, however, economic realities seem to have little impact on political debate. Both the far-right National Rally (RN) and the far-left La France insoumise (LFI) are campaigning on costly promises.
RN leader Marine Le Penfor example, wants to reinstate the retirement age of 62 while promising €140 billion in savings. Jean-Luc Melenchon, LFI’s leader, has even suggested that government bonds held by the French central bank should be “thrown into the fire.” “Nobody will ever notice they’ve disappeared,” he claims.
‘Fairy tales from the left and the right’
For Heinemann, this is “a good example of radical parties on both the right and the left simply telling economic fairy tales.” Their common message, he says, is that “there is a way out of this mess that requires neither fiscal consolidation nor painful cuts.”
Charrier is convinced that many French people have yet to grasp the seriousness of the situation.
“The euro has made it easier for France to access cheap financing and has long softened the pressure to adjust,” the expert points out.
“In the past, currency devaluations (of the French franc — the ed.) made economic imbalances immediately felt through declining purchasing power and rising prices. Today, that warning signal is missing. This has created the illusion that necessary adjustments can be postponed indefinitely,” Charrier said.
This piece was originally published in German.
Source: www.dw.com
