France's rising borrowing costs are fueling concern among investors and economists that its public debt of 3.5 trillion euros ($4 trillion) could spiral higher just as political jockeying ahead of next year's presidential election makes fiscal reform unlikely.
They cite the risk of a "snowball effect," in which the average interest rate paid on government bonds exceeds economic growth, causing debt to rise relative to the size of the economy unless the government runs sustained primary budget surpluses.
"If nothing is done, the public debt could reach 203% of GDP by 2050. Strict budgetary discipline is therefore essential to stabilize public debt," Organisation for Economic Co-operation and Development (OECD) Secretary-General Mathias Cormann told journalists in Paris last week.
Public debt topped 3.5 trillion euros in the first quarter, reaching 117.5% of GDP, according to official data. That is close to levels seen during the COVID-19 crisis and leaves France as the only eurozone country yet to reduce its debt burden from post-pandemic highs, the Cour des Comptes public audit office said.
France could in theory reverse the dynamic through stronger growth or primary budget surpluses. But with a fragile government that struggled to pass a 2026 budget through the deeply divided parliament, neither appears likely in the near term.
Credit rating firm Moody's expects debt ratios to deteriorate further among Europe's five biggest borrowers – Britain, France, Germany, Italy and Spain.
"The increase in interest payments relative to public debt will be greatest for France," Moody's Senior Vice President Sarah Carlson said at an economics conference in Aix-en-Provence last Thursday.
Interest payments on the public debt reached 66 billion euros last year and are rapidly becoming the state's biggest expense, likely to surpass the education and defense budgets.
The Cour des Comptes warned last week that the bill could approach 100 billion euros by 2029 as debt issued during years of ultra-low interest rates is refinanced at higher borrowing costs.
It has urged the government to detail how it will reduce the budget deficit from around 5% of GDP this year to the European Union's 3% ceiling and eventually return to a primary surplus.
Without such a surplus, France risks having to borrow increasing amounts simply to cover interest payments as debt grows.
"If we aren't able, we risk literally suffocating under the weight of interest," said Carine Camby, a senior auditor at the Cour des Comptes.
Even then, reducing debt can take years. Italy, despite running primary surpluses for much of the past two decades, remains one of the most indebted advanced economies along with the United States and Japan.
Ahead of preparations to pass the 2027 budget in parliament this autumn, the premium investors demand to hold French rather than German bonds has returned to highs seen after last October's suspension of a pension overhaul, overtaking the Italian-German spread.
The debt burden is becoming a political battleground ahead of next year's presidential election, with leading centrist contenders Edouard Philippe and Gabriel Attal making fiscal discipline central to their campaigns.
A lawmaker from the far-right National Rally, Kevin Mauvieux, secured backing from the lower house's finance committee on Thursday for a report sounding the alarm on the debt snowball effect.
"The longer we wait, the more painful the consequences will be," he told lawmakers.
Finance Minister Roland Lescure responded by urging opposition parties, including the National Rally, to support the government's 2027 budget when it comes before parliament in September.
Several minority governments have fallen trying to pass budgets since a snap parliamentary election in 2024 produced a hung parliament, keeping pressure on French bonds.
Economists expect bond-market volatility to remain elevated ahead of the election next year. Morgan Stanley recommended on Friday that clients reduce exposure to French debt, citing fiscal concerns.
