France is struggling with the crisis of public finances. In what condition are they really?
“Bayrou, despite the lack of a majority, initiated a vote on a vote of trust, even before he presented the parliament with a budget project at 2026, which caused the opposition's dissatisfaction. His proposals were to start the process of reducing France's deficit to 4.6 percent. GDP in 2026 with 5.4 percent At the end of 2025 And they included, among others An unpopular idea of lifting two days of state holidays and a package of tax increases and cuts of expenditure worth EUR 44 billion ” – wrote PKO BP economists.
The deficit and debt increased, and with them the cost of financing
Leaders of opposition parties argued that the deficit reduction plan hits employees and pensioners, while protecting business and wealthy. Bayrou warned the opposition that “they have to overthrow the government, but they cannot erase reality.”
“The situation of France's public finances is extremely tense – the state has the highest fiscal deficit in the euro area and the third highest debt level at 114 percent. GDPgiving way only to Greece and Italy, and the last forecasts of the European Commission assume its increase to 118 percent. GDP In 2026, the political impasse reduces the chances of fiscal reforms in France and exerts pressure on the assessment of its creditworthiness, “PKO economists pointed out that on Friday the Fitch agency would update the rating assessment of France. In October 2024, fears for the fiscal situation led to a change in the rescue perspective (AA-).
Bank Pekao analysts wrote that the fiscal situation in Europe has recently been talked mainly in the context of the impulse that it can give the European economy as a result of EU arms programs and loosening debt brake by Germany. “Growth, for now, does not materialize, so the attention of the markets has moved to the darker side of fiscal policy, i.e. to public debt, which does not look stable in every country. This applies to, among others, France, which yesterday said goodbye to the fourth in the last two years of the prime minister,” Pekao experts pointed out.
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Eurostat, PKO Research
What do financial markets value? The popular measure of fiscal condition of the euro area countries is, if more they have to pay for public debt emissions than Germany (a pattern of fiscal prevention). This is the spread, which currently amounts to 0.7 percentage points in France. And in fact – as economists note – it is increased compared to the historical average, which is half as much.
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“What's more, this level is currently similar to the spreads of Italy and Greece, i.e. countries commonly recognized as fiscal responsible. This is not a signal of the fiscal crisis. France borrows money relatively expensive, but not as expensive as until recently the countries of the south of Europe and it is not in danger of cutting off from financial markets. Suggestions that she might need support from international aid institutions (e.g. IMF) arise from the needs of political theater rather than facts, “wrote Economists of Pekao.
Dispired public expenses of France
They added that contrary to appearances It is not about fiscal irresponsibility and the lack of will to stabilize and then reduce public debt. “France has repeatedly undertaken in this direction. Their last installment was the raising in 2023 of the retirement century from 62 to 64 years (for both women and men). This was not the first such reform, 2010, the retirement age was extended from 60 to 62 years and in the meantime retired industry privileges were liquidated,” Pekao experts indicated.
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Pekao analysis
According to their diagnosis The problem is a rather huge scale of the French state expenses in relation to the country's economic potential. They account for as much as 57 percent. GDPmost in the European Union and more than in the Scandinavian countries. Why are they so high?
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“We looked at their structure and against the background of other countries Especially social policy stands out, which consumes about 24 percent. GDPincluding 13 percent GDP to support the elderly. For comparison, In Greece, 18 percent seem to be on social policy. GDP, including 12 percent to support the elderly, in Poland and 17 respectively and 10 percent GDP ” – the economists of Bank Pekao calculated.
