France is facing heavy debt and is caught in a political situation where the government lacks a parliamentary majority. This situation, along with widespread protests, has created serious challenges for the economic stability of the country.
Financial Promises Without Sufficient Resources
In response to public protests, the French government has planned to provide 4 billion euros in low-interest loans for school renovations by 2030 and another billion euros for universities by 2029. However, these promises do not align with the country's financial realities, and the government does not have access to sufficient financial resources.
France's public debt has now reached about 120 percent of GDP. In comparison, Germany's debt-to-GDP ratio is approximately 65 percent, despite this country investing 600 billion euros in infrastructure and defense.
Germany still holds the highest AAA credit rating, while France's credit rating depends on the agency, being rated AA, A+, or Aa3. While Germany's outlook is continuously assessed as stable, several agencies have assigned a negative outlook for France.
Rising Interest Rates and Pressure on the Economy
As a result, the French government must pay higher interest rates for borrowing compared to Germany. The risk premium on German government bonds has reached its highest level since the financial crisis. France pays nearly 1.6 percent more than Germany for 10-year bonds.
This premium acts as a "fever gauge" for the bond markets. If this premium rises sharply, France's financing conditions will come under pressure, and anyone needing a loan will have to pay higher interest rates. This could lead to banking problems and exacerbate the crisis.
However, Landry Cherie, a researcher at the Center for Security and Strategic Research at the University of Bonn, does not expect France's government spending to stop due to debt. He believes that the French people are aware of the country's high public debt, but this concept is abstract to them, and its consequences are not felt tangibly in daily life.
For over half a century, France has regularly spent more than its tax revenue. The last time the country managed to balance its national budget was in 1974.
Currently, it is projected that France will pay over 79 billion euros in 2026 as interest on its public debt, with this figure expected to rise to over 91 billion euros in 2027 and between 125 to 132 billion euros by 2030.
These figures also include costs related to social funds and local authorities. It is estimated that the interest costs for the central government alone currently amount to 62.6 billion euros.
In the coming years, France will need to refinance large amounts of bonds issued at historically low interest rates. At the same time, the country's significant budget deficit means it will have to take on more debt.
