The press gathered at a grand Parisian hotel to hear François Bayrou, a centrist politician greying at the temples, lay out his programme for reforming France.
“We must fight against the debt that is crushing the country,” the former teacher from a farming family in the Pyrenees told the crowd. “Debt is our enemy . . . I believe that our first weapon to fight the debt is to tell the truth to the French people, to stop multiplying promises and giveaways to everyone.”
The national debt stood then at €1.2 trillion and the annual deficit stood at €45 billion. The year was 2007. Bayrou wasn’t elected president; Nicolas Sarkozy won the campaign.
By the time Bayrou was appointed prime minister by president Emmanuel Macron 17 years later, the national debt had almost tripled to €3.3 trillion. The annual deficit had hit €168.6 billion and was running at 5.8 per cent of gross domestic product (GDP).
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Bayrou, now fully grey, addressed the press again. He warned of a budgetary “Himalaya” and a national emergency. “We are paying the debt for decades of choosing to not act,” he told them.
But France has as little appetite for spending cuts in 2025 as it had in 2007. Bayrou put his budget to a confidence vote this week and lost. The fractious parliament booted him out and anti-austerity “block everything” protests swept the country.
Next up: Sébastien Lecornu. The 39-year-old Macron loyalist – the last guy up drinking whiskey with the president at 3am, according to the French press – has become the fifth prime minister to be appointed by Macron in two years.
How long he can last is in question. The former defence minister faces the same budgetary quandary and lack of a majority in parliament that ousted two of his predecessors in the past 12 months.
The situation was created when Macron called an ill-advised snap election in 2024 in response to disappointing European election results. It split the vote three ways, delivering the Macron camp, the centre-left and the far-right roughly equal weight in parliament and no clear path to a majority.
It has created a political crisis that is coming to define the tail end of the reforming president’s time in power.
French officials aren’t used to their country being the subject of articles like this. They point to the fact that the French economy is still growing, though only just – by 1.1 per cent in 2024 and an expected 0.6 per cent this year. France has a diversified economy, they insist, and while it faces challenges, they are the same as many other countries in western Europe.
But financial markets aren’t convinced. In response to the political uncertainty, the cost France pays to borrow in the bond markets nudged above Italy’s this week for the first time; it was already above that of Greece. Bloomberg described it as a “historical shift”. “France joins euro zone’s ‘periphery’ as turmoil deepens” ran the headline in the Financial Times.
The sudden, rapid escalation of France’s cost of paying back debt is adding to the general sense of alarm. In 2021, France’s debt repayments cost €25 billion. In 2025, they are expected to cost €63 billion, according to the head of France’s fiscal watchdog, Pierre Moscovici.
“That is to say, it’s our housing budget, it’s more than our spending on defence,” he said this month. “Next year, it could be more than our national education budget.”
His auditor’s office warned that debt repayments may cost more than €100 billion in 2029, threatening to become France’s single biggest budget expense. In three particularly expensive months last year, from July to September, the debt increased by €71.7 billion. The worse it gets, the worse it gets.
[ A second French government has effectively collapsed. What is going on?Opens in new window ]
“France has a very high budget deficit and it’s struggling to get it down. Bond markets are jittery everywhere and they are looking for a victim, and France has the right characteristics,” one political insider puts it. “High deficit, political instability, protests . . . it hasn’t caught fire yet, but it could.”
How did France get to this point?
It happened slowly and then all at once.
The last time France ran a budget surplus was in 1974, three years before Macron was born. There are long-term structural issues and there are specific poor decisions.
The country spends €400 billion a year on pensions, a lofty 14 per cent of its GDP and more than most of Europe. This cost is expected to climb by €50 billion more each decade.
French pensions are paid through the national current account, with the social security payments of today’s workers being transferred to retirees. An ageing population is causing strain.
France’s pensions system is in deficit and the problem is expected to balloon in the coming decades: a deficit of €15 billion is forecast by 2035. By 2045, it is forecast to be €30 billion.
Successive reforms, including by Macron, have managed to haul the retirement age up from 60 to 64. Each was faced with ferocious public protest. However reluctantly, a new prime minister may need to address the issue again.
France lavishly supports its native industries, a policy that government officials staunchly defend. On the one hand, it is credited with preserving France’s broad-based economy and of supporting employment. It’s how China, and increasingly the United States, does business after all.
But it costs a lot of money and it’s unclear how efficiently it is spent.
A senate committee of inquiry, led by French Communist Party politician Fabien Gay, sought to establish the cost and efficiency of corporate subsidies earlier this year.
The committee’s first job was to figure out how much the state was spending, which wasn’t clear. The committee approximated that France offers 2,200 different kinds of subsidy schemes to businesses at the cost of about €211 billion annually, not counting subsidies offered by local or regional governments or the European Union.
The CEO of tyre-maker Michelin was hauled in front of the senators to be grilled on the help received by his company in the wake of a decision to shut down two factories.
“Do you understand that it’s upsetting, angering, that a group like yours, that receives public money, pays out €1.4 billion [in dividends], carries out a €1 billion share buy-back programme and lays off 1,200 people?” Gay, the communist senator, thundered. “I’m scandalised.”
The subsidies received by Michelin underline the complexity of the system. In 2023, Michelin received €40.4 million in tax credits and €14.7 million in subsidies to support research and development. It also received €10.6 million in employment support subsidy, approximately €8 million in tax relief on certain expenses, €32.5 million to offset health and family contributions, €1.4 million to modernise and €1.8 to decarbonise. There was also an additional €4 million, spread over three years, to help with energy costs.
In 2017, the company received a €4.3 million tax credit to renovate and purchase machinery for a factory in La Roche-sur-Yon. The plant shut down two years later. Six machines, still unpacked in their boxes, were sent to factories outside France, the senators concluded. The committee called for more scrutiny of the spending and for centralised oversight.
For years, it was a sore point for Mediterranean countries that France, despite routinely breaking the EU spending rule that the deficit should not exceed 3 per cent of GDP, never seemed to be told off by the European Commission in the way Athens or Rome would be.
The usual rules on spending were suspended during the Covid-19 pandemic. But French spending never returned to normal. Last year, the French deficit became unignorable, rising to 5.8 per cent for 2024 from 5.5 per cent in 2023. The European Commission announced that France would be subject to an “excessive deficit procedure”. This would involve close monitoring, tellings-off and the potential for fines if budget targets are not hit.
French officials point to a punishing combination as being responsible: a Macron corporation tax cut from 33.3 per cent to 25 per cent that reduced exchequer receipts, and the tail end of supportive measures that had eased the country through the Covid-19 pandemic and cushioned soaring energy costs.
On top of that, public pensions are pegged to inflation. The high rates of recent years was particularly punishing to France’s current account.
Bayrou’s budget aimed to cut €43.8 billion off the deficit in 2026, reducing it to 4.6 per cent of GDP.
Laid out this July, the plan was to freeze pensions and welfare payments at 2025 levels – not increasing them along with inflation, as would be expected – and cap government spending at 2025 levels.
The amount patients have to pay for medication would rise to €100 from a maximum of €50 annually. France’s richest people would be asked for a “solidarity contribution” and the government would crack down on waste and fraud in tax and social spending.
The headline measure, which came to define the whole budget, was the plan to eliminate two of France’s 11 public holidays to increase economic activity. It was widely seen as something proposed only with the aim of sacrificing it in negotiations to get the package passed. But negotiations never got that far.
This outline is expected to form the starting point of negotiations for the next effort to try to pass a budget for 2026. The only way that can happen, officials expect, is if the Socialists can be persuaded to abstain. This would allow an alliance of Macron’s camp and the centre-right Republicans to vote the budget through.
The question, therefore, is how much the budget will be watered down. Eric Lombard, the finance minister, conceded that concessions will be “inevitable” in order for it to pass.
The Socialists have named their price as a tax on the rich, going against Macron’s tactic of easing the tax burden in the hopes of encouraging growth. There may be some way in which a tax could be designed to be acceptable to both camps. It depends how much the Socialists fear losing seats if they force an election.
No one expects the far-right camp to be persuadable at any price. For the National Rally party of Marine Le Pen, the crisis underlines the need for radical change and a presidential election that she hopes will propel her party to power.
An appeal trial in January will determine whether she herself can be the candidate, or whether she will be excluded due to a conviction for embezzling European Parliament funds, with protege Jordan Bardella expected to take over.
Macron’s term runs until 2027. An overarching issue is uncertainty over who might succeed him. As an anomaly in French politics who created his political movement himself in 2016, drawing together elements of the left and right, it is unclear if Macron has any successor.
Are there risks to the broader euro zone? Unlike during the last euro zone crisis, the European Central Bank (ECB) has become established as a lender of last resort, a stabilising fact in itself, though France would be a very large project to rescue.
Even if it came to that, emergency lenders like the ECB or International Monetary Fund require the countries they help to be willing to cut spending and make difficult choices, points out Michiel Tukker, senior European rates strategist with ING bank.
“At the moment, you could argue the willingness is not broadly supported in French politics. So you’re in quite a difficult situation,” Tukker said.
“The key risk here is if you get a growth shock. For now, growth is still reasonable. That could all change if you get disappointing growth numbers, or something unexpected, an exogenous event.”
