France's Public Debt Hits Highest Levels Since 1978 Amid Growing Financial Strain

France is facing a significant public debt challenge in 2026, with its debt projected to reach 119.3% of GDP this year and 121.7% in 2027, levels not seen since 1978, according to the Ministry of Finance. This surge is driven by a growing public deficit, expected to rise to 5.4% of GDP in 2026, far exceeding the European Union's 3% limit. As a result, France has become the third most indebted country in the eurozone, behind Greece and Italy.

This fiscal strain is reflected in the bond markets, where the premium France must pay to borrow has risen sharply. The borrowing cost premium over Germany recently exceeded 100 basis points—a threshold not crossed since the early 2010s eurozone debt crisis. The yield on France's 10-year bonds now carries a premium of 104 basis points compared to Germany, signaling investor unease about France's financial stability amid political uncertainty ahead of the 2027 presidential elections.

The government has responded by proposing a 2027 budget that includes €54 billion in spending cuts, aiming to reduce the deficit to approximately 5%. However, the fragmented National Assembly poses challenges for budget approval, with risks of political instability that could further worry markets. Economic growth forecasts have also been revised downward to around 0.5% for 2026, affected by weak consumer spending and soaring energy prices tied to geopolitical tensions.

European officials have called for vigilance but have not shown alarm, viewing France's debt rise as part of a broader global trend affecting major economies including the US and other parts of Europe. Valdis Dombrovskis, European Commissioner for Economy, emphasized a measured response, cautioning against panic while monitoring developments.

Investors are particularly concerned about political proposals from presidential candidates like Jean-Luc Mélenchon and Marine Le Pen, whose fiscal plans could worsen France's public finance outlook. The rising cost of debt servicing is expected to surpass budget forecasts by €4.5 billion this year and climb by an additional €10 billion next year, potentially triggering a damaging “snowball effect” if France fails to regain a primary budget surplus.

Despite these challenges, HCFP President Amélie de Montchalin remains cautiously optimistic, stating that responsible and timely decisions can help France avoid a financial crisis. However, market analysts warn that ongoing political uncertainties may further widen borrowing costs, complicating France’s efforts to stabilize its finances in the near future.