On the eve of the presentation to the Council of Ministers of the government's draft budget for 2027, which will give rise to intense debates in Parliament, INSEE has published the figures relating to France's public debt in the 2nd half of the year, i.e. 3,595 billion euros and 119% of GDP, The net debt is slightly lower (3,366 billion) but up over one year by 191 billion.
On the same day, the interest rate on 10-year government bonds reached 4.75% compared to 3.55% at the beginning of the year. This was the highest level since the 2008 financial crisis. The spread with the German Bund exceeded 100 basis points while it was only 60 points in previous years. This reflected both the rise in rates on the world market and the concern about France's debt level in the context of instability if not political unpredictability that affected the country.
In itself, the level of French rates is not an isolated case, as it is about 50 basis points lower than the rates observed, for the same maturities, in the United States and the United Kingdom, countries that are also heavily indebted, with the former having a heavy external deficit. France, on the other hand, has a current account balance close to balance (-0.4% of GDP in 2025). This general rise in rates is the consequence of an increasingly deteriorating international situation. Russia's invasion of Ukraine did not immediately raise concerns on the energy markets. The overall supply of fossil fuels was sufficient for the sanctions adopted against Russia not to create significant imbalances. Only Germany, as a result of its bad choices, was forced to review its supplies and purchases from China would become the main destination for Russian exports.
The lack of a rebound in inflation even prompted the European Central Bank to cut interest rates several times in 2024 and 2025. Supply chains in industry were disrupted, but weak growth in the eurozone put enough pressure on demand that this did not translate into a rebound in inflation. Everything changed with the outbreak of war with Iran, the blockage of the Strait of Hormuz and the destruction of refining capacity.
Oil and gas prices are surging, even in the United States, which has become the world's leading exporter. Despite pressure from the White House, the Federal Reserve is raising its rates for the first time in the summer of 2026. But the country's growth is above 2% and sustained domestic demand can contribute to inflation. A policy aimed at moderating demand through higher credit prices is not unjustified, especially since this domestic demand is a factor in aggravating the trade deficit; the yield on 10-year US bonds quickly exceeds 5% and 30-year bonds are not far from 6%.
The situation is completely different in Europe. Inflation is experiencing a strong rebound due to the rise in energy prices, but this is an external cause; France's growth was weak in 2024 and 2025 when Germany was in recession. Berlin is starting to emerge from this while Paris, and the figures for the 1st half of the year bear witness to this, are stagnating. However, the ECB raised its key rates by 25 basis points in September and the financial markets are expecting, since inflation will remain well above 2%, one or even two further increases by the end of the year. This has had immediate repercussions on medium- and long-term rates, which are well above 3% in the least indebted countries and well over 4% for France and Italy.
The September figures will not reassure the markets since in harmonised data over one year, inflation in Spain reached 4.9%, in France 3.4% (3% in national data) and 3.3% in Germany. However, further increases will penalise France for three reasons. They will fuel speculation, which will lead to further increases in medium- and long-term rates. They will jeopardise a resumption of growth, depriving the State of the revenues it generates. Finally, they will increase the debt burden, making it even more difficult but necessary for future governments to adopt measures to reduce deficits.
The State had to pay 42.9 billion in 2024 and 50.3 billion in interest in 2025 on its own debt, to which must be added the interest paid by other public administrations, mainly local authorities and Social Security, i.e. almost 20% more in one year. 11% of the State's medium- and long-term debt is indexed to the country's inflation or that of the euro zone. The acceleration observed in 2026 will therefore add an additional burden. 7% of this debt is made up of short-term Treasury bills which have rates that are not very different from those of the ECB. They too, with the increase in debt caused by new public deficits, will contribute to the increase in the annual burden.
Finally, each year bonds bearing a low rate will be replaced by securities bearing higher rates, which will further increase the burden of the following years. Unlike most other public expenditures, these charges, contrary to what some political leaders with little knowledge of the functioning of the markets imagine, cannot even be partially cancelled since at the same time, every month the State calls on investors to subscribe to new issues.
But dramatizing France's financial situation, in the hope of having unpopular measures adopted, is not a good method because it fuels speculation. If a country's leaders claim that it is in difficulty, the risk of lending to it is higher and we are entitled to expect a higher return. However, as we approach the presidential election, this alarmist and sometimes catastrophic discourse is becoming more and more widespread; the recent rise in ECB rates is therefore not the only reason for the fall in ten-year rates on French debt compared to German rates. The spread has increased in a few weeks from 75 to 100 basis points.
The answer to, if not reverse, at least halt the deterioration of the country's financial situation, must be based on credibility and on duration. The problem cannot be solved with a magic wand and overnight. The French and therefore France have never been so rich, since the amount of financial assets net of their short-term debts has exceeded 6,200 billion euros, not counting their real estate. Similarly, large companies have never been so profitable, to the point that in the first half of the year they were second in the world in terms of the amount of dividends paid to their shareholders.
However, there is a close correlation between this rise in wealth over the past ten years and the increase in public debt. It is up to the next leaders, in their proposals, to show that they have properly analysed the phenomenon. The financial markets will then draw the consequences and stop speculating on a possible French financial crisis.