France needs to save €43 billion: why its huge public debt is getting more expensive and worrying Europe once again

Pressure on French government debt has intensified. On October 2, the difference between 10-year French and German bond yields peaked at around 150 basis points, or 1.5 percentage points. This is the highest level since the eurozone debt crisis in 2012.

By the close of trading, the gap narrowed somewhat to around 140 basis points, and 10-year French bond yields dropped to roughly 4.86%. But the spike itself was a notable signal: investors are demanding an ever larger premium to lend to France instead of Germany.

The problem goes far beyond the bond market. The more expensive it is for the government to borrow, the faster budget interest costs rise and the less room is left for other spending.

What a 150 basis point spread means

To compare the cost of government debt, investors often look at the so-called spread—the difference in yields between two countries' bonds of the same maturity.

In the eurozone, German government bonds, or Bunds, usually serve as the benchmark, because Germany is perceived by the market as one of the region's most reliable borrowers.

If a 10-year German bond yields, say, about 3.4% while a French one yields about 4.9%, the difference is about 1.5 percentage points, or 150 basis points.

For France, this means investors are demanding significantly higher returns to hold its government debt.

Moreover, the latest spike came from both sides: French bonds were falling amid concerns about public finances, while German bonds enjoyed increased demand as a safe haven.

Why the market is worried about France again

The key issue is the combination of large public debt, a high budget deficit and the fast-rising cost of servicing it.

By the end of the second quarter of 2026, France's public debt reached roughly €3.6 trillion, or 119% of GDP.

The government expects the debt-to-GDP ratio to keep rising in 2027 and approach 122%.

At the same time, the 2026 budget deficit is estimated at around 5.4% of GDP. The draft budget for next year envisages cutting it to 5%.

That is still far above the EU benchmark of 3% of GDP.

For investors, it is not just the figures themselves that matter, but also how quickly France can change the trajectory of its public finances.

€43 billion in new measures planned in the 2027 budget

On October 1, the French government presented its 2027 draft budget, which includes €43 billion in new measures to improve the state of public finances.

Together with previously adopted measures that will continue to affect the budget next year, the government says the total fiscal effort amounts to about €54 billion.

These two figures are important not to confuse. €43 billion is the new measures in the draft budget, while €54 billion is the total estimate when taking into account around €11 billion of earlier decisions.

It is also not entirely accurate to call all €43 billion simply “spending cuts.” The plan combines restricting government spending and measures to boost budget revenues.

The government intends to freeze spending in nominal terms for most ministries, except for certain priority areas, and to limit growth in several other categories.

According to government calculations, without corrective measures the 2027 budget deficit could instead have grown by about another percentage point of GDP.

Debt interest is starting to eat up more of the budget

High market rates are dangerous for France not because all existing debt suddenly becomes more expensive.

Most government bonds were issued earlier at fixed interest rates. But as old bonds mature, they must be replaced with new ones—at today's higher rates.

At the same time, France needs to borrow money to finance its current deficit.

In 2027, the state debt agency Agence France Trésor plans to issue a record €340 billion in medium- and long-term bonds, including buybacks of old paper. That is about 10% more than the 2026 programme.

Against this backdrop, the interest burden is rising fast. According to budget estimates, debt servicing costs could rise from roughly €79 billion in 2026 to €91 billion in 2027.

The government itself points out that the roughly €12 billion increase in interest spending next year is comparable to the annual budget of the Ministry of Justice.

Why rising yields could set off an unpleasant chain reaction

For the government, high bond yields gradually mean more expensive new debt.

The more money has to go to interest, the harder it becomes to simultaneously fund social programmes, education, infrastructure, defence and other budget items—or revenues have to be raised, or borrowing continues.

This creates a market-sensitive mechanism: large debt increases interest costs, and fears about future costs make investors demand even higher yields.

That is why investors are now closely watching not only the size of French debt but also how convincing the budget trajectory will be over the coming years.

What is happening does not mean France faces a market access problem or cannot service its obligations. The country continues to issue debt, and its bonds remain one of the largest and most liquid government markets in Europe.

The market's signal is different: the cost of that financing has risen markedly.

Why the comparison with Germany matters so much

The current 150 basis points draw attention precisely because the market has not seen such a gap with Germany since the eurozone sovereign debt crisis of 2012.

Back then, sharply widening spreads between countries showed how differently investors assessed the risk of individual states within a single currency area.

Today the causes and scale of the situation differ from the early 2010s. Yields are rising not only in France: the global bond market is under pressure from inflation, expensive energy and interest-rate expectations.

But French bonds have come under extra pressure in recent weeks, specifically related to the state of the budget and the prospect of further rising debt.

At the same time, investors are buying German bunds more actively, pushing their yields down and widening the gap between the two countries even further.

What will be the key indicator going forward

The market now cares about several figures at once: whether France can bring the deficit down to the planned 5% of GDP, whether budget measures can actually be implemented, and how fast debt servicing costs will grow.

The behaviour of the spread itself is equally important.

If the gap with Germany starts narrowing steadily, that would mean a lower premium for French risk. If it stays near current highs or continues to widen, new borrowing will gradually become even more expensive for the government.

So the 150 basis point mark is not important in itself. It shows how much the market's attitude toward French debt has changed: investors are now only willing to lend to one of the eurozone's largest economies at a significantly higher premium than to Germany.

Sources: Government of France, Financial Times, Bloomberg, Agence France Trésor.