The downward revisions to French growth in 2026 by INSEE (0.7%) and the Banque de France (0.5%) are justified by the deterioration in the international environment since the outbreak of the war in the Middle East. The rise in oil prices has weighed on household purchasing power and corporate margins. Uncertainties about the world economy have prompted economic agents to be more cautious and therefore to reduce spending and recruitment. The lull after the conclusion of a program of talks between the United States and Iran has allowed oil prices to fall but has not removed concerns.
These events take place in an already tense financial and political context in France. The State must present its budget for 2027 in the autumn and have it adopted before the end of the year. The difficulties observed last year and which caused the fall of the Bayrou government will be further aggravated by the proximity of the presidential election with political forces that are not very motivated to support a government at the end of its course.
The slowdown in activity will also have consequences for public finances. The achievement of a target of maintaining the public deficit at 5% of GDP is far from being achieved and the Banque de France believes that on the contrary it could rise to 5.2%, in contradiction with France's commitments to Brussels to return to around 3% in the coming years. The government and future candidates will therefore make the budgetary issue a central element of the next presidential campaign by proposing solutions that will be examined by the financial markets.
However, the situation is much less catastrophic than some people believe and the tax measures that are recommended are often excessive and risk having the opposite effect of the desired goal. Several facts deserve to be recalled, which does not exempt us from attacking the real causes of the deficit and the increase in public debt. First, the financial markets and the rating agencies have so far maintained their confidence in France's ability to honour its commitments. Each issue is significantly oversubscribed, sometimes more than three times. On 15 June, Agence France Trésor raised 7.6 billion Treasury Bills for a demand of more than 23 billion and on 18 June it raised 14 billion in medium-term bonds against a demand of 42 billion.
The way in which this debt is managed is not without reproach and has contributed to increasing the burden on the State. This will increase more than what will result from the accumulation of deficits and the increase in interest rates. By choosing to invest securities indexed to euro zone inflation at a time when France has been experiencing lower inflation for many years, AFT has increased the State's charges at the time of their repayment. Thus, in July 2027, the burden created by this indexation on the maturing bond bearing an interest rate of 1.85% will exceed €9.5 billion.
Similarly, by issuing long-term securities at rates higher than market rates, AFT has certainly collected issue premiums reducing its immediate cash requirements, but it has, once again, artificially increased the burden in future years. Moreover, there was no advantage to these premiums, since short-term interest rates were close to zero at the time. The increase in the future debt burden, so often presented as a threat, is therefore to a significant extent the consequence of these practices that are difficult to justify.
The criterion used to measure debt and its use in international comparisons is also highly questionable. We construct a ratio between a flow, annual production, with a stock, and the debt accumulated over the years. To assess a country's ability to repay, it would be much more appropriate to relate this debt, for example, to the financial assets held by households. This ratio has risen in France from 33.5% in 2005 to 53% in 2025.
International comparisons are not as unfavourable as is claimed. If we put aside Japan, whose ratio exceeds 200%, we see that the United States, the United Kingdom and Italy are more indebted than France without anyone threatening Washington or London with bankruptcy in the near future. In addition, France, unlike these two countries, has a current account surplus and although a significant part of its debt is held by non-residents, in this case it is the ECB and funds located in Luxembourg for tax reasons and whose holders are often French savers.
The main comparison used to denounce France's excessive debt is that with Germany, whose ratio has just exceeded 60%. But again, in the current international context, this is for a very bad reason. Since reunification 35 years ago, Germany has spent barely 1% of its GDP on military spending, while France has spent more than 2%. Corrected for this structural difference, the gap between the two countries is much smaller and justifies neither the German arrogance in Brussels nor the inferiority complex of Paris which forces it to submit in other areas such as energy, to the proposals supported by Berlin.
France's real problem is not its deficit but the mismanagement of public spending with excessive operating costs and too many national and local public institutions. This is where continuous and significant efforts will have to be made to gradually reduce deficits and the debt ratio. However, the political world favours communication to the detriment of action and the effects of announcements, especially during a presidential campaign, will be sought. And to be noticed, they will have to be excessive and therefore arouse deep rejection by the population.
The presentation of an excessively negative financial situation of the country is intended to scare people in order to make unpopular measures accepted. They will even go so far as to claim that this is the main issue in the presidential election. But this strategy will arouse deep discontent that will benefit extremist parties. However, these parties, on the far right as well as on the far left, have economic programs without any credibility. Even if a "Frexit" is not explicitly on the agenda, the incompatibility between these programs and membership of the European Union and therefore of the eurozone is obvious.
The financial markets will notice this and, this time and for good, will question France's ability to meet its commitments. As the polls show a rise in voting intentions in favour of these movements, the threat of a financial crisis will become more present with a rise in the rates that France must pay at each issue. The United States has so far managed to get its heavy deficits accepted because a certain political stability, even if it was threatened by the volatility of its president's announcements, is very real. France is in the opposite situation. Its financial vulnerability is much less important than some people claim, but the threats to its stability resulting from the positions taken by political leaders are very real.
The French risk is not financial. It is political.