France's deteriorating public finances and political deadlock are becoming a growing concern for bond investors, with borrowing costs near financial-crisis-era highs as another difficult budget battle looms.
The European Union's second-largest economy has endured recurring political instability and mounting fiscal strain in recent years. It has repeatedly broken European Commission rules on budget deficits and debt limits, and successive prime ministers have been ousted after failed attempts at reform, spending cuts and tax rises to bring the situation under control. France is subject to the EU's excessive deficit procedure, with the Council recommending it end its excessive deficit by 2029.
Fiscal Numbers
- EU treaties set reference values of 3% of GDP for government deficits and 60% for government debt.
- Last year, France's deficit reached 5.1% of GDP, while the debt-to-GDP ratio surpassed 115%.
- The IMF projected in July that France's gross government debt would reach about 118.5% of GDP in 2026 and exceed 120% in 2027, remaining above that level through 2030.
- The economy contracted 0.2% quarter-on-quarter in the first three months of this year and stagnated in the second quarter.
The upheaval has caused acute stress in the country's bond markets, with French government bond yields rising dramatically over the past year — exacerbated by the U.S.-Iran war's impact on borrowing costs worldwide — giving France some of the highest government borrowing costs in the G7. French 10-year government bond yields hit their highest level since 2008, above 4.13%, last week and remained near 4.1% on Friday.