France’s Debt Reaches a Historic Level

France’s public finances are facing another significant test after government debt reached €3,595.5 billion at the end of June, according to the National Institute of Statistics and Economic Studies. The increase pushed public debt to 119% of GDP, marking an unprecedented level in the latest data.

The ratio represents a substantial deterioration from earlier in the year. Between the end of the first and second quarters of 2026, public debt increased by €59.6 billion, following a €75.8 billion increase during the first quarter, when debt stood at 117.5% of GDP.

Central Government Remains the Main Driver

The increase was not uniform across government entities. Debt held by the central government and the social security system increased during the second quarter, while the debt of local authorities declined.

The government has already warned that the debt ratio could rise further, reaching 121.7% of GDP in 2027. That would place France at more than twice the European Union’s 60% reference level and extend a period of rapidly increasing fiscal pressure.

Higher Rates Make the Debt More Expensive

The changing interest-rate environment is becoming increasingly important. When borrowing costs were exceptionally low, including periods of negative interest rates during the Covid-19 era, governments could finance additional debt at relatively limited cost. That environment has changed substantially.

France is now facing significantly higher financing expenses as both the size of its debt and borrowing costs increase. The government expects debt servicing to cost approximately €79 billion in 2026, while the projected figure for 2027 is €91 billion.

Market conditions have also become less favorable. Investors are demanding interest rates close to 5% to lend to France for 10 years, according to the source. Such borrowing costs have not been seen since the global financial crisis period in 2008, increasing the potential fiscal impact of refinancing and new borrowing.

The 2027 Budget Faces a Difficult Balancing Act

Rising interest expenses are complicating the government’s effort to stabilize public finances. The draft 2027 budget, scheduled for presentation on October 1, is designed to reduce the public deficit to 5% of GDP, although the target has been pushed back by one year compared with the earlier timetable.

The source also highlights political constraints surrounding the 2027 presidential election. Economists cited in the report argue that the approaching electoral cycle could make structural reforms more difficult to implement, potentially limiting the government’s ability to reduce spending or raise revenues.

Bond Yields Could Determine the Next Fiscal Test

France’s fiscal outlook therefore depends not only on government spending plans but also on the cost of borrowing in financial markets. If yields remain elevated or increase further, a larger portion of the state budget could be directed toward interest payments rather than public investment or other policy priorities.

The combination of rising debt, higher debt-service costs and a challenging political environment creates a difficult backdrop for the 2027 budget. Investors will be watching the government’s fiscal proposals, French bond yields and the evolution of the debt ratio closely as markets assess whether France can slow the pace of deterioration.