France's Debt Crisis Risks Spreading Across Europe as Deficit and Public Debt Rise

Many market watchers warn that France is heading toward a debt crisis unless France sustainably reduces its national deficit. The market watchers warn that a crisis in France, the euro zone's second-biggest economy, risks spreading across Europe. France recorded a budget deficit of 5.1% of GDP in 2025. France's public debt reached 115.6% of GDP in 2025, leaving France under pressure to consolidate public finances.

France's parliament begins debating the 2027 budget on Tuesday. The National Assembly begins debate on the revenue side on Oct. 13. High deficits, rising debt and student protests are increasing the political cost of fiscal consolidation. Thousands of protesters are demonstrating against years of underfunding in public services, particularly education. Student protests over education resources are adding pressure over spending choices ahead of the 2027 presidential election.

France has recorded one of Europe's highest deficit-to-GDP ratios for nearly a decade under President Emmanuel Macron. Government spending on social protections, particularly pensions and healthcare, remains well above spending by France's peers. Tepid economic growth has failed to compensate for that spending. France's economic and political uncertainty is weighing on the euro as presidential elections approach next year and parliamentarians remain reluctant to compromise.

France's government borrowing costs have reached their highest level in nearly a quarter of a century as bond markets respond to France's failure to impose fiscal consolidation. The widening gap between France's bond yields and Germany's bond yields has raised questions about whether the European Central Bank would need to intervene. Such intervention would be expensive and politically controversial. Intervention could halt a panic that fragments the currency union. However, the legacy of the sovereign debt crisis, which hit Greece, Ireland, Portugal, Spain and Italy, means intervention would require drastic action from France.

Antonio Fatas, professor of economics at INSEAD Business School, said the ECB will not intervene merely to bail out France. Fatas said the ECB would intervene in some form during a European crisis. Fatas said the ECB would not save a country that cannot save itself.