There is little doubt that Prime Minister Francois Bayrou will fail to secure parliamentary confidence in the upcoming vote on September 8, as the current administration lacks the necessary majority to advance its proposed budget cuts aimed at addressing France’s growing public debt. The immediate aftermath remains unclear: while the far-right Rassemblement National is calling for fresh elections, President Emmanuel Macron may attempt to form another minority government, deepening political uncertainty.
The core of the crisis lies in France’s mounting fiscal burden. In absolute terms, France holds the largest national debt among EU countries, reaching approximately €3.35 trillion ($3.9 trillion), equivalent to about 113% of its gross domestic product (GDP). Projections suggest this ratio could climb to 125% by 2030. Only Greece and Italy exceed France in debt-to-GDP within the bloc. This year, the country’s budget deficit is estimated between 5.4% and 5.8%, the highest among the 27 EU member states.
Meeting the EU’s deficit reduction target of 3% will require significant fiscal adjustments. However, with austerity measures facing strong political resistance, financial markets have reacted by demanding higher yields on French government bonds. While Germany pays around 2.7% interest on its debt, France must offer nearly 3.5%, reflecting increased investor concern.
Friedrich Heinemann, an economist at the ZEW Leibniz Center for European Economic Research in Germany, acknowledges that while a short-term debt crisis is unlikely, the broader implications for the eurozone are troubling. “The eurozone is not stable at this point,” he told DW, questioning the long-term trajectory if a major economy like France continues to experience rising debt alongside political instability.
Other large economies, including Germany, Japan, and the United States, are also issuing substantial volumes of government debt this autumn, contributing to ongoing stress in global bond markets. The only factor preventing a sharper market reaction to France’s situation, according to Heinemann, is the expectation that the European Central Bank (ECB) might intervene by purchasing French bonds. Yet he cautions that such action could damage the ECB’s credibility if perceived as politically motivated.
Historically, French governments have struggled to implement structural reforms due to widespread opposition from both left- and right-wing factions. Labor unions have already announced a nationwide strike for September 10, intensifying social pressure.
France now spends €67 billion annually on debt servicing, and its commitment to EU fiscal rules adds further strain. Heinemann criticizes the European Commission for enabling the current situation through leniency toward France in past deficit evaluations, calling it a politically driven compromise aimed at curbing populist gains. “France has exhausted much of its fiscal flexibility,” he said, contrasting it with Germany’s relatively stronger position.
Heinemann argues that comprehensive welfare and spending reforms are essential, but sees little chance of cross-party consensus given the shrinking political center and rising influence of populist movements. “I don’t see a solution,” he admitted.
Andrew Kenningham, chief European economist at Capital Economics, believes the spillover effects on other European markets remain limited—for now. In a client note, he stated that risks are contained as long as France’s difficulties do not escalate. However, he warns that due to France’s central role in the eurozone—its size, financial integration, and political weight—a deeper crisis could threaten the cohesion of the European Union itself.
“We don’t anticipate such a scenario in the next one to two years, but if it occurs, contagion risks would rise significantly, requiring decisive action from the ECB,” Kenningham noted.
The timing of this domestic turmoil is particularly challenging, coinciding with escalating transatlantic tensions over trade, including France’s proposal to impose higher taxes on U.S. tech firms. Heinemann warns that nationalist sentiments within France, particularly among populist factions, could push the EU toward retaliatory tariffs, increasing the likelihood of a full-scale trade conflict that would further strain public finances.
— news from DW
— News Original —
Could France’s economic turmoil spark eurozone debt crisis? – DW – 09
Few doubt that Prime Minister Francois Bayrou will lose the confidence vote in the French parliament scheduled for Monday (September 8), as the current French government lacks the majority needed to push through his budget-cutting plans aimed at reining in France ‘s public debt. n nWhat happens next is uncertain. Whether new elections will be called, as demanded by the far-right Rassemblement National, or President Emmanuel Macron manages to install another minority government, is the political side of the crisis. n nEconomically, it ‘s about money and France ‘s towering debt burden. In absolute terms, no EU country holds more consolidated national debt than France. Sovereign debt has climbed to around €3.35 trillion ($3.9 trillion) — about 113% of gross domestic product (GDP), with the figure expected to rise further to 125% by 2030. n nEurope ‘s debt king n nFrance ‘s debt-to-GDP ratio is so high that only Greece and Italy surpass it within the European Union. With a budget deficit of 5.4% to 5.8% this year, Paris also runs the largest budget shortfall in the 27-nation EU. n nTo meet the EU ‘s target of reducing the deficit to 3%, drastic savings are unavoidable. n nHowever, since cuts are currently politically untenable, financial markets have responded with higher risk premiums on French bonds. While German bonds carry an interest rate of about 2.7%, the French government needs to pay close to 3.5% interest for its debt. n nSo should we worry about the stability of the single European currency, the euro, if the finances of the eurozone ‘s second-largest economy slip out of control? n n”Yes, we should be worried. The eurozone is not stable at this point,” says Friedrich Heinemann, an economist with the ZEW Leibniz Center for European Economic Research in Mannheim, Germany, even though he is “not concerned” about a new short-term debt crisis in the coming months. n n”But we have to ask where this is heading if a big country like France, which has seen a steadily rising debt ratio in recent years, now also faces further political destabilization,” he told DW. n nOther major economies are also racking up historically high debt and must raise billions on capital markets. This fall, for example, Germany, Japan, and the US will need to issue new government bonds to finance their spending — a key reason global bond markets remain under pressure. n nThe only reason the markets aren ‘t even more nervous — meaning the spreads on French bonds aren ‘t rising further — is hope that the European Central Bank will step in and buy French bonds to stabilize the market, Heinemann thinks. “But that hope could be misplaced, because the ECB has to be careful not to undermine its credibility.” n nIt ‘s been a long-standing political dilemma for successive French governments that whenever they propose austerity measures or economic reforms, parties on both the left and right cry foul and mobilize their supporters. n nUnions have already called a general strike for September 10, two days after the confidence vote. n nEU Commission and ECB under pressure n nFrance now spends €67 billion annually just on interest payments. And it is under pressure because it has committed to gradually reducing its deficit in line with EU rules. n nBut Heinemann also lays part of the blame on the steps of the EU Commission because it has “helped create this mess.” n n”It kept turning a blind eye, even both eyes, when it came to France. Those were political compromises driven by fear of strengthening populists,” he said, adding that “France has already used up much of its fiscal space. Germany is in a much better position, with plenty of room to maneuver.” n nStalled reforms n nAccording to Heinemann, France, like Germany, urgently needs major welfare reforms and spending cuts. The alternative would be higher taxes in a country that already imposes heavy tax burdens on both citizens and businesses. n nTherefore, Heinemann is skeptical that French politics can deliver a cross-party consensus on debt reduction. “With populists on both the left and right gaining ground, I don ‘t see that happening. The center is shrinking. That ‘s why I ‘m pessimistic about France and don ‘t see a solution.” n nFor Andrew Kenningham, chief European economist at London-based Capital Economics, the risks to other European markets remain manageable for now. n n”So far, the problems seem largely confined to France itself, as long as the scale of the French issue doesn ‘t grow too big,” he said in a note to clients. n nBut he warned of scenarios where France ‘s crisis could escalate significantly, raising the risk of contagion. n n”After all, France is the eurozone ‘s second-largest economy, with deep trade and financial ties to its neighbors, and it is also a leading EU political power,” Kenningham noted, saying a crisis in France could therefore put the very viability of the European project into question. n n”We don ‘t expect a crisis of that magnitude in the next one to two years. But if it were to happen, contagion could become a much bigger risk — one the ECB would have to address,” he said. n nBad timing for a political crisis n nFrance ‘s turmoil comes at a time when the EU is locked in conflict with the United States over trade policy, including higher taxes on US tech giants proposed by France. n nIt ‘s poor timing for the EU to appear weakened by the political deadlock in its second-largest economy. n nFor Heinemann, many political actors in France are “Trumpists at heart,” especially on the left and right of the political spectrum. n n”They could increase pressure on the European Commission to retaliate against Trump ‘s tariffs with European tariffs,” the economist warned, which would “raise the risk of a real trade war” and worsen the country ‘s debt crisis even further. n nThis article was originally written in German.