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France’s debt crisis deepens as prime minister faces confidence vote
France is grappling with an escalating sovereign debt crisis that threatens to destabilize the eurozone's second-largest economy as political turmoil compounds the government’s challenges. Prime Minister François Bayrou faces a critical confidence vote on Monday that could lead to his administration's downfall, plunging the country further into uncertainty.
Market fears and rising borrowing costs
Political paralysis has already unsettled financial markets. Yields on French 30-year bonds have surged to 4.5%, the highest level since the eurozone debt crisis in 2011. Meanwhile, the 10-year bond yield reached 3.6% earlier this week, bringing France's borrowing costs alarmingly close to those of Italy, historically viewed as Europe’s fiscal weak link.
The mounting debt burden is also a growing concern. France’s public debt reached €3.35 trillion (114% of GDP) by the end of Q1 2025, while its budget deficit soared to 5.8% of GDP in 2024, nearly double the EU's target of 3%. Economists warn that without decisive action, debt levels could climb to 125% of GDP by 2030.
Controversial austerity plan sparks backlash
Bayrou has proposed a €44 billion austerity package to address the crisis, including canceling two public holidays and freezing spending increases. However, these measures have been deeply unpopular, with 70% of French citizens opposing the government according to recent polls.
Opposition parties spanning the political spectrum have vowed to vote against Bayrou in Monday’s confidence vote. The far-left coalition Nouvelle Front populaire and the far-right Rassemblement National hold enough seats to topple the government. Marine Le Pen, leader of the Rassemblement National, dismissed any negotiations and called for the dissolution of parliament and new elections.
Credit ratings under pressure
Credit rating agencies have already downgraded France’s sovereign debt due to political instability. In December, Moody’s lowered France’s rating from Aa2 to Aa3, citing political fragmentation as a barrier to effective fiscal reform. Fitch is set to review its AA rating on September 12, with a negative outlook signaling further potential downgrades.
The widening spread between French and German government bonds, a key indicator of investor confidence, has reached 80 basis points, reflecting a political risk premium of up to 25 basis points. This deterioration in investor sentiment has forced France to pay higher borrowing costs than Greece for the first time in recent memory.
Economic recovery at risk
The political and fiscal crises are jeopardizing France’s fragile economic recovery. GDP growth is forecast to slow to just 0.6% in 2025, while interest payments on public debt are expected to rise to 2.5% of GDP in 2025 and 2.9% in 2026, the highest level in a decade.
European Central Bank President Christine Lagarde voiced her concerns earlier this week, warning that while France’s economy remains resilient, any government collapse within the eurozone poses significant risks. Comparisons with Italy’s past fiscal struggles have emerged, with some analysts dubbing France the "new Italy."
If Bayrou loses Monday’s vote, President Emmanuel Macron will face the daunting task of appointing a fourth prime minister in less than a year. With Macron’s term ending in 2027, political gridlock threatens to leave the debt crisis unresolved for years to come.