France’s Debt Servicing Becomes a Stress Test for the Budget

Paris – 05.08.2026: Financing France’s public debt remains a significant risk factor for the budget, even during the summer recess. The yield on ten-year French government bonds temporarily rose to around four percent at the end of July, reaching a level last seen during the European sovereign debt crisis. Higher market interest rates are hitting France at a time of exceptionally high public debt.

According to the latest data from the statistics office Insee, the Maastricht debt of public administrations stood at EUR 3,536.1 billion at the end of March 2026. This corresponded to 117.5 percent of economic output and an increase of EUR 75.6 billion compared with the previous quarter. The central government accounted for by far the largest share of this increase, at EUR 66.3 billion.

The immediate budgetary impact of rising yields initially remains limited because France refinances its bonds across different maturities. However, older securities with very low coupons are gradually maturing and must be replaced on less favorable terms. The interest burden is therefore not rising suddenly, but it is rising permanently. The government debt report estimates it at EUR 60.4 billion for 2026, up from EUR 44.5 billion in 2024.

For 2029, the government’s financial planning already anticipates interest expenditure of EUR 90.2 billion. This projection is based on the assumption that the long-term interest rate will reach four percent by the end of 2028. According to calculations by Agence France Trésor, a sustained increase of one percentage point above this baseline scenario would raise the annual burden by EUR 3.1 billion in the first year and by around EUR 18 billion in the fifth year.

At the same time, financing needs remain high. After buybacks, Agence France Trésor plans net issuance of EUR 310 billion in medium- and long-term bonds for 2026. Regularly maturing short-term Treasury bills are added to this. This volume makes France particularly dependent on stable demand from institutional investors. Although the agency can adjust its issuance plan to market conditions, it cannot avoid the underlying refinancing requirement.

Banque de France put the yield on ten-year French government bonds at 3.75 percent as early as 12 June. The spread over German federal bonds had widened only moderately at that time, indicating that demand remained sustainable. At the same time, the central bank warned that an insufficient reduction in the deficit could worsen financing conditions and weigh on ratings agency assessments.

Cost pressure thus results from the combination of high deficits, a large refinancing volume and higher interest rates. With each year in which older low-interest bonds mature, debt servicing absorbs a larger share of the government’s room for maneuver.