Paris (France) (AFP) – The higher interest rates on France’s government debt are an alarm signal for the country, even though Paris retains the confidence of bond investors, the country’s finance minister said Wednesday, as concerns grow over the sustainability of the French budget.
“We have the confidence of the markets in the sense that we have no trouble issuing debt,” Roland Lescure told Franceinfo radio. “But it costs us more, and that is an alarm signal we all need to take on board.”
With investor worries mounting over France’s debt and the government’s ability to pay it down, Paris has to offer higher interest rates on the government bonds it issues to reward investors for the perceived additional risk. France’s 10-year government bond yield has already neared five percent on the markets in recent weeks.
EU economy commissioner Valdis Dombrovskis told AFP on the sidelines of the IMF-World Bank annual meetings in Bangkok on Tuesday that “it’s important to have clarity about the budget” in France. IMF chief Kristalina Georgieva warned meanwhile that it “would take time” before France’s debt levels could come down to levels “that are providing confidence — full confidence — to people and to the investor community.”
French public debt is projected to reach a record high of 121.7 percent of GDP in 2027 under the government’s budget proposal, up from 119 percent at the end of June. The budget that the French government is seeking to push through parliament also envisages pushing down the budget deficit to five percent of GDP next year, from an estimated 5.4 percent for 2026. However, its lack of a majority in the lower house of parliament has made adoption of the budget an uphill struggle.
The situation is further complicated by France’s approaching presidential election, with President Emmanuel Macron, a centrist former investment banker, unable to seek a new term. Front-running candidate Marine Le Pen of the far right, in an interview with The Financial Times published Wednesday, acknowledged the “gigantic, enormous debt …that could become uncontrollable.” She wants to impose 140 billion euros in cost-savings that would come partly from slashing the French contribution to the EU budget.
“We know there will be a tough debate, even a trial of strength” with Brussels, she told The FT. Speaking in Bangkok, Bank of France Governor Emmanuel Moulin called on French political leaders to “shoulder their responsibilities” to ensure the adoption of a budget, in apparent reference to a constitutional provision that allows governments to force through legislation without a vote.
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