France has announced plans to borrow a record amount on the bond market next year, days before the government unveils its 2027 budget this Thursday. As the country's debt hits its highest level in 80 years and investors up their rates, ministers are under pressure to slash spending – yet surging inflation, strikes and approaching elections are setting the stage for a tussle in parliament over proposed cuts.
France will borrow €340 billion in 2027, some €28 billion more than this year, the government agency responsible for managing the country's debt announced on Tuesday, two days before the budget bill is due to be presented.
Agence France Trésor (AFT) said the record borrowing was needed to finance government spending and repay debt coming due.
French public debt stood at a record €3.596 trillion at the end of June, national statistics office Insee said the same day. That represents 119 percent of GDP, a ratio not seen since 1946 when France was rebuilding after World War II.
The government has already warned that it expects public debt to reach over 121 percent of GDP in 2027, more than double the European Union's limit of 60 percent.
At the same time, France is paying billions of euros more to service its debt. Having racked up loans when rates were low during the Covid pandemic, France is now seeing those debts come due and refinancing them at higher rates of interest.
Investors now demand interest rates of around 4.8 percent to lend to the French state over 10 years, levels last seen during the 2008 financial crisis. Germany's equivalent rate is around 3.6 percent.
"Investors will keep lending to France, but they are already demanding higher and higher rates. A significant part of this stems from doubts about our ability to reduce the deficit sustainably through genuine structural reforms," Pascal de Lima, chief economist at consultancy firm BKMC, told RFI.
"Thursday's budget will be a real test of credibility. Will the markets consider the savings that are announced? Will everything be properly laid out?"
As things stand, he said, that is not the case.
Conflicting budget demands
Prime Minister Sébastien Lecornu and his government have already pushed back plans to rein in France's deficit, the annual shortfall between what the government spends and what it collects in taxes.
After coming in at 5.1 percent of GDP last year, it is forecast to hit 5.4 percent in 2026 – even further from the 3 percent ceiling mandated in EU treaties.
Lecornu has pledged to bring it down to 5 percent in 2027, a target originally set for this year.
Earlier this month, he said he would outline savings of €54 billion in the 2027 budget. Yet only €10 billion worth have been detailed so far, according to de Lima, including a public-sector pay freeze that triggered a widespread strike on Tuesday.
With households pinched by rising prices and presidential elections less than a year away, Lecornu's government faces an uphill battle to convince an already fractured parliament to approve painful spending cuts or long-term reforms.
Inflation is forecast to rise by 3 percent year-on-year in September, according to Insee's latest estimate on Wednesday, compared to 2.4 percent in August.
The surge is driven largely by mounting energy prices, which are up 21.2 percent year-on-year, and is expected to drive the cost of basic goods up for several more months.
In an interview with Le Figaro newspaper published on 17 September, Lecornu said the draft budget would present "an assertive proposal to cut public spending in a country that relies too heavily on it".
"But we are a long way from austerity," he added.
Among other measures the government has indicated it is considering is a hike in taxes on motorway and airport operators, who could see their tax rate jump from just under 5 percent to around 12 percent.
