Investing.com — The sell-off in French government bonds is a warning that investors are becoming less tolerant of heavy borrowing and persistent budget deficits, with the episode potentially pushing governments elsewhere to accelerate spending cuts and fiscal consolidation, Capital Economics said.
In a research note, the consultancy’s Chief Global Economist Jennifer McKeown said France’s difficulties were unlikely to trigger a broader fiscal crisis, given that few other advanced economies combine similarly weak public finances with such limited political room to rein in spending.
However, the fallout could weigh on global economic growth in the coming years.
France’s gross government debt is estimated at 118% of GDP in 2026, below levels in Japan, Italy and the U.S. and broadly comparable with the UK. Its fiscal position stands out because of the scale of its borrowing despite the already elevated debt burden.
The International Monetary Fund expects France to run a primary budget deficit, which excludes interest payments, of 2.8% of GDP this year, compared with a 1.4% deficit in the UK and a 1% surplus in Italy.
To stabilise its debt ratio, France would need to bring its primary budget balance close to zero, requiring a substantial fiscal adjustment. Capital Economics said no other major advanced economy faced a comparable gap between its current primary balance and the level needed to stabilise debt.
Political constraints are adding to the pressure. President Emmanuel Macron’s government lacks a majority in the National Assembly and has struggled to pass a budget, while proposed spending reductions have faced resistance and protests. Investors are also concerned about the prospect of greater fiscal populism ahead of next year’s presidential election, with Marine Le Pen currently the frontrunner, the consultancy said.
Capital Economics expects France’s headline budget deficit to remain close to its current 5.4%, rather than fall significantly.
A French fiscal crisis could have international consequences because foreign investors hold roughly 60% of the country’s marketable sovereign debt, equivalent to around €1.6 trillion. About half of those holdings are outside the euro zone.