How Severe Is France’s Debt Problem?

In the first week of October, lending to France suddenly looked a lot riskier. The 10-year borrowing cost touched 4.989%, the highest since 2002, and the gap to Germany hit 152 basis points, the widest since the eurozone crisis. By the afternoon, the headlines were asking whether France is the next Greece.

I don’t think it is. But I don’t think the people saying “relax” are right either. France has a real debt problem, just not the one in the headlines. To see it, you have to ask three separate questions. How big is the debt? Where is it heading? And do investors believe France will deal with it? France passes the first test and struggles with the other two.

The sharpest version of the pessimistic case came on 9 October from Nobel laureate Paul Krugman, who argued that France may have gone from too big to fail to too big to save. Is this indeed the case? This article tests that claim as well as the headlines.

The Size Is Not the Problem

France owes about €3.6 trillion, or roughly 118% of everything the country produces in a year. That is a lot. Eurostat puts the euro area average at 88.9% and Germany at 64.4%. But two countries owe even more: Greece at 143.5% and Italy at 138.9%. Both are charged less than France to borrow.

Look at the direction over the past year and it gets stranger. Greece’s debt ratio fell by 9.4 points. France’s rose by 4.0. The country everyone uses as the warning is, in this one respect, doing better than France.

So the size alone is not what is frightening investors. France borrows in euros, its bonds are still in deep demand, and the average maturity of its debt is more than eight years, so higher rates take time to feed through. The big rating agencies still grade it A+ or better. Even the sell-off itself costs little for now: Citadel Securities estimates that a 130 basis point rise in yields adds only about €4.4bn a year to the interest bill, or 0.14% of GDP. The panic is not the damage. What it points to is.

So What’s France’s Real Problem?

It comes down to two things. France keeps spending more than it earns, and investors are not sure it will stop.

Start with the spending. France runs a deficit of about 5.4% of GDP a year. Take out the interest on old debt, and it still overspends by about 2.9%. Economists call that the primary deficit, and it is the part nobody has managed to close. Citadel Securities estimates France would need to bring it to roughly zero by 2032, which means improving by about half a point of GDP every year, in a country with a record of falling short of its fiscal targets.

Right now, it is that overspending that pushes the debt up, not compounding interest. France’s average interest rate is about 2.2%, close to the growth rate of the economy, so the famous debt snowball has not started rolling. But the average is low only because most of the debt was borrowed cheaply years ago. New debt costs about 4.75%, and the interest bill is about €65bn this year and could pass €90bn in 2027. The IMF sees debt at 120.3% of GDP in 2027 and 121.1% in 2028. A Banque de France working paper from late 2025 reached a similar conclusion, though its data are older. So even if everything goes to plan, the debt keeps rising, and the direction is not good.

Then there is trust. In a note on 6 October, ABN AMRO removed everything that normally moves French bond prices. What was left was an unexplained premium of roughly 60 basis points, against about 25 that research attributes to a typical election in a heavily indebted country. Working backwards, the market is behaving as if France’s debt were about 140% of GDP, not 118%.

It is not hard to see why. France has a minority government, a presidential election in spring 2027 and a record of watering down its deficit targets. The 2027 budget proposes about €54bn of savings and extra revenue, and the debate starts on 13 October with no majority behind it. Markets have heard similar promises before, and they are charging for the gap between the promise and the delivery. That premium has stayed elevated for almost 500 trading days, which the ABN AMRO authors call highly unusual.

So How Severe Is France’s Debt Problem?

Back to Krugman’s claim. As reported from his Substack post, he argues that in the 2009 to 2012 crisis, investors fled weak euro countries and the panic fed itself until the ECB stepped in. He doubts the ECB could do the same for France, because the rescue would be so large that other members might refuse to pay for it. The ECB does have a tool for yield rises that are not justified by a country’s fundamentals, but France is already under the EU’s excessive deficit procedure, so it may not qualify. The Bank of France governor, Emmanuel Moulin, goes further in Reuters reporting: the situation is serious, he says, but does not justify ECB help.

I am not saying Krugman is wrong. If a spiral did start, the safety net would be uncertain, and that matters. But with the current numbers, I do not see France’s debt growing exponentially. There are three reasons.

The climb is slow. A spiral needs interest costs to outrun the economy by a wide margin. Today the gap is close to zero. On the IMF’s path the debt rises by less than two points of GDP a year and reaches about 122% to 124% by 2032. That is a slow climb, not a blow-up.

Higher rates arrive slowly. The average maturity of French debt is more than eight years, so new rates only reach the bill as old bonds are replaced. Citadel estimates that the 130 basis point rise in yields adds only about €4.4bn a year, or 0.14% of GDP. That buys France time.

The market is worried, not panicking. Investors put the chance of a French default within five years at about 1.2%, the figure Krugman himself cites. The gap to Germany peaked at 152 basis points, well short of the 200-plus levels seen in past Italian stress episodes, and ABN AMRO does not expect France to get there, because the euro-area tail risks behind those episodes are largely absent. Citadel says contagion to other countries has been contained so far.

So my view is a slow squeeze, not a spiral. That is still a problem. The IMF has the average interest rate climbing toward 2.8% by 2032, and on its path interest starts to outrun growth from 2033. Citadel thinks even that may be optimistic. If rates stay high while growth stays near 1%, the squeeze tightens. The danger is time wasted, not a sudden collapse.

Three Ways This Can Go

None of this is a prediction, but the next few months will show which way it leans. The budget debate starts on 13 October, Moody’s next review is on 23 October, S&P’s on 27 November, and the presidential votes are on 18 April and 2 May 2027. ABN AMRO’s scenarios for the gap to Germany, which stood at 152 basis points on 2 October, give a useful range.

France delivers. The budget passes close to its current form and the 5% deficit target is met. In ABN AMRO’s baseline the gap falls back to 105 to 115 basis points. But that is a plateau, not a recovery. The debt still rises toward 122% to 124% by 2032. Success here means the problem stops getting worse, and that has to be enough.

France muddles through. The budget passes diluted, or the savings slip into 2028, and ABN AMRO puts the gap at 120 to 130 basis points. This is the scenario I think is most likely, and it does the quietest damage. BNP Paribas estimates debt reaches 126% by 2032 if the serious cuts slip, against 124% if they hold. No single year looks like a crisis, and each one adds a little to the cost. If the government falls and the budget fails outright, the range moves to 130 to 150, and a downgrade from Moody’s or DBRS, both already negative, becomes the obvious next step.

The 2027 election resets the rules. Marine Le Pen, the far-right frontrunner, pledged €140bn of net savings by 2032 and a deficit of 3% by 2030 on 6 October. Citadel doubts the numbers: more than a fifth of the savings come from immigration changes whose fiscal effect is uncertain, and it is unclear how the pension savings fit with her proposal to lower the retirement age to 62. Markets will judge the details, not the headline. A credible rule could narrow the premium, and an uncosted one would widen it.

Where I Come Down

France is not Greece, and it is not fine either. What it has is a decision problem. The fix is not mysterious: the IMF calls for spending-led consolidation, anchored in a clear multi-year plan that deals with an ageing population. The logic is simple. A government that looks as though it will pay what it owes borrows cheaply, and one that does not look that way pays more. What is hard is the politics, and pensions are the obvious pressure point. Whoever governs after 2027 will have to answer that question.

I would change my mind if the budget is forced through by emergency law, if the gap to Germany moves back above 150 basis points, or if a rating agency cuts France again. That would be a loss of confidence, not a slow squeeze. In the other direction, a budget that passes with its savings intact would do more to lower the premium than any speech. The size of the debt is France’s problem to manage. The trust is its problem to earn.

Key sources: Eurostat (government debt, Q1 2026); IMF (2026 Article IV consultation with France); ABN AMRO Research (6 October 2026); Citadel Securities (7 October 2026); French Treasury (AFT, credit ratings); Paul Krugman (Substack, October 2026).

This piece represents the opinion of the author. Facts, figures and dates are drawn from the public sources listed above and are accurate to the best of our knowledge as of 12 October 2026. Bond market levels change daily, and forecasts are estimates, not guarantees. This article is not financial advice.