What went wrong with France’s economy? Debt, political turmoil and a costly global crisis

France is facing one of its most serious bouts of unrest in years, with more than half a million people taking to the streets over the rising cost of living and deteriorating public services. What began as a student-led movement over underfunded schools has widened into nationwide demonstrations, with clashes, looting and fires adding to the pressure on President Emmanuel Macron’s government.

The protests exposed a deeper economic problem. France is struggling to reconcile its extensive welfare state and public spending commitments with persistently high budget deficits, rising debt-servicing costs and weak economic growth. Political divisions are making it harder to agree on who should bear the cost of fixing the country’s finances, just as geopolitical tensions are adding to the burden.

France’s public deficit stood at 5.1 per cent of gross domestic product (GDP) in 2025, while public debt reached 115.6 per cent of GDP, according to the country’s national statistics agency, Insee. The government now expects the deficit to widen to 5.4 per cent in 2026, missing its earlier target, and aims to bring it down to 5 per cent in 2027.

The stakes extend beyond France. Rising borrowing costs, uncertainty over the next budget and the approaching 2027 presidential election have raised concerns about the country’s fiscal credibility and the risks for the wider eurozone.

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How did France get into this position?

France’s economic difficulties have accumulated over several years rather than emerging from a single crisis. The pandemic, the energy shock following Russia’s invasion of Ukraine and more recent geopolitical disruptions have added to spending pressures. But the underlying issue is that government expenditure has remained substantially higher than revenue.

France operates an extensive social security system covering pensions, healthcare, education and other public services. These commitments are funded largely through taxes and social contributions. The system provides households with a broad safety net, but it also creates a substantial and recurring spending obligation for the state.

The problem is not simply the size of public spending. It is the persistent gap between expenditure and revenue, even outside exceptional emergencies. When a government spends more than it collects, it must borrow to cover the shortfall. Repeated deficits add to the accumulated stock of public debt and increase the amount that must eventually be repaid, along with interest.

France’s deficit fell from 5.8 per cent of GDP in 2024 to 5.1 per cent in 2025. Yet its debt continued to rise, reaching €3.46 trillion at the end of 2025, according to Insee.

The Organisation for Economic Co-operation and Development (OECD) says France’s economy has grown by an average of around 1.4 per cent since 2023. Modest growth limits how quickly tax revenues can expand, making it harder to reduce the deficit without raising taxes or cutting expenditure.

The government is now trying to restore fiscal discipline while avoiding measures that could further weaken consumption, investment and public confidence. That is becoming increasingly difficult as borrowing costs rise and political opposition to spending restraint intensifies.

Why are pensions at the centre of France’s debt problem?

Pensions are one of the most politically sensitive parts of the debate because they sit at the intersection of public finances, demographics and social expectations.

France has an ageing population, and people are living longer. This increases the number of years for which retirement benefits must be paid, while the working-age population that finances pensions through taxes and social contributions does not necessarily grow at the same pace.

President Emmanuel Macron’s government previously sought to raise the statutory retirement age gradually from 62 to 64. The reform triggered fierce opposition and remains a symbol of the difficulty of changing France’s social model.

The fiscal argument is that a pension system that requires growing public support leaves less room for other priorities. Education, healthcare, infrastructure and defence all compete for resources, while the government must also meet its existing debt obligations.

Economist Paul Krugman argued in an October essay that France’s difficulty in confronting pension spending is central to its fiscal predicament. He contended that pressure from retirement commitments has contributed to constraints on other spending, including education.

The debate is not simply about whether pensions should be reduced. Changes to retirement ages or benefits affect household incomes, workers’ expectations and the distribution of costs between generations. Raising the retirement age can improve the finances of a pension system, but it can also mean people must work longer. Cutting benefits can reduce public expenditure, but it risks increasing financial pressure on retirees.

That makes reform politically difficult, particularly when the government is already facing protests over living costs and public services.

Why are students protesting over public services?

The student protests have brought the consequences of the budget squeeze into sharper focus.

Demonstrators have raised concerns about overcrowded classrooms, teacher shortages and school buildings that require repairs or are poorly equipped to deal with rising temperatures. Their grievances reflect a wider frustration that public services are deteriorating even as households continue to contribute heavily through taxes.

The unrest has since expanded beyond education to include the cost of living and dissatisfaction with the government. While many demonstrations have been peaceful, violent groups have clashed with police, looted shops and set public buildings on fire.

The protests have become an economic and political challenge for Macron. The government must respond to demands for better services and support for households without committing to spending increases that could undermine its deficit-reduction plans.

This is where the pension debate and the education protests intersect. If a growing share of public resources is absorbed by existing commitments, governments have less flexibility to improve services or respond to new needs. But reducing those commitments can provoke resistance from the people who depend on them.

The result is a conflict over priorities. Younger people are demanding investment in schools and better prospects, while pensioners and other beneficiaries have strong reasons to oppose cuts to the support on which they rely.

Why can’t France simply borrow more?

Governments can borrow to finance public services and investment. The problem arises when investors begin to question whether deficits can be brought under control and debt can be stabilised over time.

France’s borrowing costs have risen amid concerns about its fiscal outlook and political uncertainty. In October, its 10-year government bond yield approached 5 per cent, reaching levels not seen since 2002, according to financial market reporting.

When bond yields rise, the government faces higher costs when issuing new debt or refinancing existing obligations. That leaves less money available for other priorities and can make the deficit harder to reduce.

France’s membership of the euro adds another complication. It does not control an independent national currency or have the same freedom to create money as a country with its own currency. Monetary policy is set by the European Central Bank, which must consider conditions across the entire eurozone rather than France alone.

This does not mean France is on the verge of default. It remains a large, diversified economy with access to deep financial markets. But investors are increasingly concerned about whether its political system can deliver a credible and lasting fiscal adjustment.

The difference between France and a country already in a sovereign debt crisis is important. The current warning signs point to rising financing pressure and political risk, not proof that a default is imminent.

How has the geopolitical crisis made matters worse?

France’s fiscal problems are unfolding against a more uncertain international backdrop. The conflict in the Middle East has increased energy-price risks, while Russia’s war in Ukraine and broader security concerns are pushing European governments to reassess defence spending.

Higher energy costs can squeeze household purchasing power, raise production and transport expenses for businesses and put upward pressure on inflation. If the government responds with subsidies or other relief, it risks adding to expenditure. If it withdraws support or raises taxes, households may have less money to spend.

The French government has acknowledged that the deteriorating international environment has contributed to the weaker growth outlook and the expected increase in the deficit. In parliamentary discussions in October, officials said growth in 2026 had been revised down to 0.5 per cent and the deficit was now expected to reach 5.4 per cent of GDP.

France must also balance its social spending commitments against pressure to invest more in defence and strategic capabilities. That is a difficult task when interest payments are taking up an increasing share of the budget.

Geopolitical shocks did not create France’s fiscal weaknesses, which predate the latest conflict. They have, however, made those weaknesses more costly by adding to economic uncertainty and competing demands on public resources.

Why is political instability making the crisis harder to solve?

Macron’s centrist camp has lost its parliamentary majority, leaving the government dependent on a fragmented National Assembly to pass budgets and reforms. Political divisions between the far right, which emphasises immigration controls and national identity, and the left, which advocates stronger public services and redistribution, have made compromise harder.

The disagreement is fundamentally about who should pay for fiscal adjustment and what the state should protect. Raising taxes, reducing spending, reforming pensions or relying on stronger economic growth all carry costs and face opposition.

Prime Minister Sébastien Lecornu’s proposed 2027 budget seeks to bring the deficit down to 5 per cent of GDP. But the government must navigate parliamentary resistance while responding to public demands for better services and relief from higher living costs.

The approaching presidential election adds another layer of uncertainty. Investors want to know whether the next government will continue efforts to stabilise the debt burden. Political parties, meanwhile, face incentives to oppose unpopular reforms or promise changes to existing policies.

That uncertainty can affect businesses as well as financial markets. Companies may delay investment when they cannot predict future taxes, regulations or the direction of economic policy. Weaker investment would make it harder to lift growth, adding to the fiscal challenge.

Is France heading for a debt crisis?

France’s economic strengths should not be overlooked. It has major aerospace, defence, tourism, luxury goods and manufacturing industries, as well as an established financial system. Its economy continues to grow, even if at a modest pace.

But the combination of high debt, persistent deficits, rising borrowing costs and political deadlock leaves the government with less room to respond to future shocks.

The immediate test is the 2027 budget. If the government can secure a credible plan to reduce the deficit and demonstrate that it can implement that plan, it may help reassure investors. If political divisions prevent meaningful action, borrowing costs could remain elevated and the debt burden could continue to rise.

The consequences would extend beyond France. As one of the eurozone’s largest economies, its fiscal outlook matters to investors across Europe. Prolonged instability could complicate efforts to finance defence, energy security and industrial investment, while raising questions about the resilience of the single-currency bloc.