France's Political Instability Deepens Economic and Financial Woes in 2025

Political instability in France is significantly undermining the country's financial credibility and economic performance, according to recent analyses and official remarks. The resignation of Sébastien Lecornu triggered a sharp reaction in the financial markets, with the Paris stock market plunging over 2% before settling down 1.36%. Investor confidence in French debt is waning, as evidenced by France borrowing at higher rates than Italy for ten-year bonds—a first in years—reflecting heightened risk perception amid political uncertainties.

France's national debt has reached €3.4 trillion, equivalent to 115.6% of its GDP, raising alarms about the government's ability to service rising interest payments, expected to jump from €67 billion in 2025 to €100 billion by 2029. The stagnation in forming a stable government and disagreements delaying budget proposals have exacerbated the situation, with pending fiscal plans on hold and market watchers awaiting Moody’s and Standard & Poors ratings updates later this year.

Economist Raul Sampognaro from OFCE emphasized the need for a credible multi-year budget to restore market trust while affirming that France's economic fundamentals remain resilient without nearing a debt crisis scenario comparable to Greece’s past turmoil.

On the economic front, Patrick Martin, president of Medef, sounded a stark warning: the "decrochage" or decline of the French economy is underway due to political paralysis. He cited two years of declining investments and 100,000 private sector job losses. This political indecision has cost France approximately €9 billion in GDP and nearly €4.5 billion in public revenues, with OFCE predicting a 0.3 percentage point GDP growth cut for 2025. Martin noted that France's growth lags substantially behind neighbors like Spain, projected to grow four times faster, and highlighted Germany’s active business support measures as a contrasting example.

Martin called for greater political solidarity and urgency to reverse these damaging trends, underlining concerns that continued instability may necessitate higher taxes and further hamper French businesses and consumers.

As France faces these mounting fiscal and economic challenges, the combined impact of political turmoil and market skepticism poses serious risks to the country’s financial standing and growth trajectory in the near term.