France's Public Debt Becomes Central Issue in Upcoming Election

France's public debt has surged to a record high during President Emmanuel Macron's tenure, emerging as a critical issue for the upcoming presidential election. With the debt now at 119% of the gross domestic product (GDP), candidates are under pressure to outline strategies for fiscal control amid deep social tensions.

Prime Minister Sebastien Lecornu is set to present the 2027 draft budget, which proposes reducing the deficit through public spending cuts, a measure drawing criticism across the political spectrum. One proposal that has garnered significant attention comes from radical-left presidential candidate Jean-Luc Melenchon, who suggests canceling French government bonds held by the European Central Bank (ECB) to free up funds for public investment. He argues that freezing the debt effectively amounts to cancellation by transforming it into a perpetual debt with low or no interest.

ECB President Christine Lagarde has strongly opposed Melenchon's idea, calling it a "pure violation" of the EU treaty that prohibits central bank financing of national governments. Lagarde warned that such a move could lead creditors to demand exorbitant terms or refuse to lend to France in the future.

France, a major industrial power with the world's seventh-largest economy, reported its public debt at 3.596 trillion euros ($4.08 trillion) at the end of June. This figure represents a substantial increase from 97.9% of GDP in 2019, prior to the COVID-19 pandemic. While many countries have seen their debt levels rise, France's debt-to-GDP ratio is higher than the euro area average of 88.9% at the end of the first quarter of 2026. However, it remains lower than that of Greece (143.5%) and Italy (138.9%), and comparable to the U.S. (122.6%). Unlike the U.S., France does not benefit from having the world's dominant reserve currency, which aids in borrowing capacity.

Understanding Public Debt

France finances its public services, such as education, justice, and policing, primarily through taxes and levies. For over five decades, expenditures have consistently outpaced revenue, resulting in a budget deficit. The government finances this gap by taking out loans, the accumulation of which constitutes public debt. High deficits can concern investors, potentially leading them to demand higher returns on loans.

France last balanced its budget in 1973. While accumulated debt was historically high, often exceeding 90% of GDP from 2008 onwards, it was considered manageable due to steady economic growth and prolonged periods of near-zero interest rates. The COVID-19 pandemic and the subsequent energy crisis following Russia's reduction of natural gas supplies significantly impacted public finances. Government spending increased to support businesses and shield citizens from higher energy costs. Globally, interest rates rose, contributing to France's debt climbing from 98% of GDP in 2019 to 114% in 2020.

As public debt grows, so does the expenditure required for debt servicing. Currently accounting for about 7% of the state budget, interest costs are projected to reach 77 billion euros annually with higher interest rates, diverting funds from essential public services like schools, pensions, and healthcare.

Credit Ratings and Debt Holders

In September, the credit rating agency Scope downgraded France's long-term ratings, citing a "sustained deterioration in the fiscal outlook, characterized by rising general government debt, persistently high fiscal deficits and limited progress on structural reforms." Despite these concerns, Fitch Ratings maintained France's sovereign credit rating at "A+" with a stable outlook in August, supported by the country's large, diversified economy, a sound banking sector, and a diverse investor base.

French public debt is held by a variety of investors: approximately one-quarter by domestic French investors, another quarter by the Banque de France (acquired as part of the ECB's monetary policy), a quarter by investors from the euro area, and the final quarter by investors from outside the euro area. These debt holders include insurers, banks, central banks, and pension funds in countries with funded pension systems.