France debt hits 119% of GDP, putting 2027 election plans under scrutiny

France's public debt has risen to a record level during President Emmanuel Macron's two terms, unsettling investors and becoming a major issue ahead of next year's presidential election. With debt now at 119 per cent of gross domestic product, candidates seeking to succeed Macron are under pressure to explain how they would bring it under control.

Prime Minister Sebastien Lecornu, who is due to present the 2027 draft budget on Thursday, wants to reduce the deficit by cutting public spending, a proposal that has drawn criticism across the political spectrum. A separate proposal by radical-left candidate Jean-Luc Melenchon to cancel French government bonds held by the European Central Bank has also come under scrutiny, with ECB President Christine Lagarde calling it a breach of EU rules.

At the end of June, France's public debt stood at 3.596 trillion euros, or USD 4.08 trillion, according to figures released this week by France's Institute of Statistics and Economic Studies. That was equal to 119 per cent of GDP, up from 97.9 per cent in 2019 before the COVID-19 pandemic. France remains a major industrial power and the world's seventh-largest economy. It is not alone in taking on more debt in recent years. At the end of the first quarter of 2026, the euro area's gross government debt was 88.9 per cent of GDP, according to Eurostat. France's debt ratio is lower than Greece's 143.5 per cent and Italy's 138.9 per cent, and also below the United States' 122.6 per cent, though France does not have the same borrowing advantage as the US.

France's budgets are funded mainly through taxes and levies paid by individuals and businesses, while spending goes towards public services such as education, the justice system and policing. For the past 50 years, spending has been higher than revenue, creating a budget deficit. To cover that gap and keep funding public services, the country borrows money, and the total of those loans makes up public debt. Deficits matter because investors demand more in return when they lend to the government.

France last balanced its budget in 1973, while still maintaining a generous welfare system and strong worker protections. Debt had remained above 90 per cent of annual GDP from 2008 onwards, but was manageable for years because of steady growth and near-zero interest rates. The pandemic then pushed spending higher, followed by an energy crisis after Russia cut off most natural gas supplies following its 2022 invasion of Ukraine. The French government spent heavily on subsidies to support businesses and protect people from rising energy bills, while interest rates rose sharply worldwide. As a result, France's debt went from 98 per cent of GDP in 2019 to 114 per cent in 2020.

As debt has increased, so has the state's spending burden. Debt servicing now makes up about 7 per cent of the state budget. With interest rates much higher, annual interest costs are expected to reach 77 billion euros, reducing the money available for schools, pensions and healthcare.

Melenchon has argued that cancelling or freezing French debt held by the ECB would free up money for investment. "Freezing this debt means transforming it into perpetual debt -- that is, debt with no repayment deadline and a low or zero interest rate," he said. "Freezing it is therefore effectively the same as cancelling it." Leaders on the right have rejected the idea, with far-right leader Marine Le Pen instead calling for reforms to "clean up" public finances.

Lagarde said Melenchon's proposal would be a "pure violation" of the EU treaty, which bars central bank financing of national governments. She warned that if France froze its debt now, future creditors could demand very costly terms or refuse to lend. "It's not because you repeat something that doesn't make any sense -- either legally, technically, or financially -- that it becomes something valid," she said at a news conference on September 10.

Credit rating agencies have also flagged the issue. Scope downgraded France's long-term ratings in September, saying, "A sustained deterioration in the fiscal outlook, characterised by rising general government debt, persistently high fiscal deficits and limited progress on structural reforms drive the downgrade." Fitch Ratings, however, said in August that it was maintaining France's sovereign rating at "A+" with a stable outlook. "France's ratings are supported by its large, diversified high-income economy, a sound banking sector and a diverse investor base," it said.

According to France's economy ministry, the country's debt is held by a wide range of investors: one-quarter by French investors, one-quarter by the Banque de France through purchases made under ECB monetary policy, one-quarter by investors from the euro area, and one-quarter by investors from outside the euro area. These holders include insurers, banks, central banks and pension funds. With debt at a record high and competing plans on how to tackle it, France's public finances are set to remain central to the political debate ahead of the presidential election.

With PTI Inputs

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