France's public finances are a growing concern for bond investors, with borrowing costs nearing financial-crisis-era highs. The nation's deficit reached 5.1% of GDP last year, significantly exceeding the EU's 3% reference value, and its debt-to-GDP ratio surpassed 115%. The International Monetary Fund projects France's gross government debt to reach about 118.5% of GDP in 2026 and exceed 120% in 2027, persisting at that level through 2030.
Economists and investors are worried about a "snowball effect," where the average interest rate paid on government bonds surpasses economic growth, causing debt to increase relative to the economy. The OECD warns that France's public debt could reach 203% of GDP by 2050 if no action is taken. The cost of servicing this debt is rapidly climbing, with interest costs potentially nearing $100 billion by 2029.
Political deadlock and upcoming elections are exacerbating the situation. The 2027 budget battle and presidential election are seen as crucial tests for France's public finances. With far-right candidate Marine Le Pen currently leading in polls for the 2027 presidential election, and the government focused on political stability rather than significant fiscal adjustment, there's little sign of the necessary reforms. French 10-year government bond yields hit a post-2008 peak of over 4.13%, reflecting acute stress in the bond markets. Analysts note that French government bonds already trade more cheaply than Italian equivalents, a situation previously unthinkable, and could decline further in a negative scenario.
