France’s Fiscal situation: Between Political Paralysis and European Discipline

France’s public finances are under significant strain. The general government deficit is projected at about 5% of GDP in 2025, while public debt is approaching 115% of GDP. In addition, unlike most European countries, the deficit has risen since 2023 and remains well above the euro area average of 3%. Two main factors explain this gap, as can be seen in Figure 1. First, France deployed extensive energy price shields and subsidies in 2022–2023 to contain the inflation shock, measures that proved costly even if they protected households from soaring bills. Second, recent cuts in corporate and household taxation, combined with the phasing-out of temporary crisis-related revenues, have constrained public revenue growth. Since 2017, the overall tax rate has fallen by more than two percentage points, without being offset by either lower expenditure or stronger economic growth.

Yet the core of the fiscal crisis is political. Since 2024, the government has lacked a stable parliamentary majority to pass the annual budget, while past attempts to reform pensions, labour market rules, or environmental regulation have triggered major social unrest. As can be seen in Figure 2, the driving causes of the widening, or narrowing, of the spread between French and German 10-year bonds are political events: the dissolution of Parliament in May 2024, and the vote of the 2025 budget in January 2025 after the end of the Barnier government. In September, the FRA-GER spread has risen again after the end of the Bayrou government and in anticipation of the political debate that will accompany the vote on the 2026 budget by the new Lecornu government, which has already fallen as I write this article. This environment makes it extremely difficult to cut spending or raise taxes, and therefore to reduce the deficit credibly and sustainably.

As a result, France now faces a dilemma. Under the new European fiscal rules, and following the activation of the excessive deficit procedure in 2024, it is expected to deliver an adjustment effort of nearly 4 percentage points of GDP, reaching a structural primary surplus of 1.5% of GDP by 2031. The previous governments by Francois Bayrou and Michel Barnier delivered pluriannual fiscal frameworks that were consistent with the European fiscal rules, as can be seen in Figure 3, with a slight change in strategy as the Barnier government tried, unsuccessfully, to frontload the adjustment effort in 2025, which may have contributed to its downfall. However, growth is likely to remain subdued, below 1% in the coming years, precisely because of the restrictive impulse required, and there is no political majority to assume such a fiscal impulse.

Looking ahead, budgetary pressures will intensify further. First of all, population ageing will drive up pension and health costs. The various scenarios of the National Pension Council (June 2025 Report) imply a less favourable primary balance by 0.3 percentage points in 2030, and a very pessimistic scenario of labor productivity growth at 0.4% would thus lead to an increase in the primary deficit of about 1.7 percentage points by 2070 due solely to pensions. Moreover, defense spending is set to rise in the face of geopolitical risks. The 2023 Military Programming Law provides for a steady increase in French defense spending over the 2024–2030 period in order to gradually raise the defense mission effort to 2% of GDP. But recent events may mean France will need to raise the defense budgets to 3.5% or even 5% of GDP, which would represent a colossal effort. To finish with, a recent analysis by I4CE (Financing the Transition, 2024) indicates that public spending for climate, which stood at €32 billion in 2024, will need to increase in order to meet national targets. By 2030, it is expected to range between €39 and €71 billion, depending on the extent of the effort required from the private sector through regulations and fiscal signals.

If the time is critical, it is not unprecedented though. Debt levels have been higher and debt servicing costs are on a relatively low level compared to what they have been in the past, as can be seen in Figure 4 (Harty de Pierrebourg, Monnet & Leonard, 2025). This indicates that France has, in the past, successfully financed a debt of a similar magnitude on several occasions, albeit with a much higher debt servicing cost than today. However, the changing economic environment and the new challenges it faces should prompt it to reconsider how public debt is managed, in terms of maturity, debt holders, etc.

For France, finding a way out of its fiscal dilemma will probably require a multi-pronged strategy:

• First, France must restore a credible budgetary process by securing stable parliamentary support for annual budgets and for a reform agenda resilient to political uncertainty. This is likely to involve reversing part of the tax cuts of recent years while preparing to face more long-term structural spending pressures.
• Second, given the political constraints, France should negotiate a more gradual adjustment path with the European Commission, in parallel with a redefinition of what should be financed at EU level, particularly for defense and the climate transition, which are European public goods. The German case, which successfully negotiated with the Commission an adaptation of the European fiscal rules to suit the last political agreement reached by the CDU and the SPD, shows that is possible.
• Finally, France will need to accept and manage a permanently higher level of debt. Even if the adjustment path required by the European fiscal rules were fully implemented, and no new crisis occurred since then, public debt would still stand above 110% of GDP in 2040. This requires more creative debt management and measures to strengthen sustainability, especially given the relatively high share of French debt held by non-residents compared with other euro area countries.