France's debt interest payments are set to increase significantly, with Finance Minister Lecercq estimating this year's debt servicing costs at $65 billion. This figure represents a $4.5 billion rise from the initial budget projections. The primary factors contributing to this increase are ongoing geopolitical tensions and the general rise in interest rates.
The broader trend indicates a substantial increase in France's debt burden. In 2021, the state's debt service was approximately $40 billion. Projections for 2026 place the cost for the entire general government sector at $78 billion, rising to an estimated $124 billion by 2030. This upward trajectory highlights a shrinking fiscal room for maneuver, as every additional billion spent on interest cannot be allocated to critical areas like defense, infrastructure, education, or energy transition.
The cost of France's debt is becoming a major constraint on the national budget. The $78 billion expected in 2026 for general government debt service represents about 2.6% of GDP and an increase of nearly $12 billion year-over-year. This surge is attributed to refinancing debt at higher rates and the impact of inflation on indexed bonds. The European Commission forecasts a total deficit of 5.1% of GDP for 2026, with interest equivalent to 2.6% of GDP, indicating that even without interest payments, the public sector spends significantly more than it collects. The country's public debt reached $3.5 trillion in the first quarter, equating to 117.5% of GDP, with net debt at 109.7% of GDP.
French government bond yields have risen dramatically, with 10-year yields nearing 2008 highs, exceeding 4.1% last week. This exacerbates borrowing costs, positioning France among G7 countries with the highest government borrowing costs, partly due to the U.S.-Iran war's impact. The average life of France's marketable debt is about eight and a half years, which provides some cushion against immediate rate hikes, but older, low-rate bonds are gradually being replaced by more expensive new issues. Analysts note that while there isn't an immediate crisis, the continuous rise in interest costs widens the deficit, which in turn necessitates new issuance, creating a potential self-reinforcing cycle if investors begin to doubt the country's capacity to stabilize its debt, leading to higher risk premiums.
