France, long considered a pillar of economic stability in Europe, now finds itself grappling with a financial crisis that has sent shockwaves through global markets and unsettled the European Union. On October 17, 2025, it was reported that France’s government deficit had soared to 5.8% of GDP—nearly double the limit set by the European Union. This fiscal shortfall comes at a time when political deadlock and spending on dual crises have left French finances in disarray, threatening the country’s standing as a leading industrial power with the world’s seventh-largest economy, according to the Associated Press.
The roots of France’s current predicament run deep. The nation last balanced its budget in 1973, relying on solid economic growth and a generous welfare state with strong worker protections to keep things afloat. For years, the accumulated debt—over 90% of annual GDP since 2008—remained manageable, especially with the help of near-zero interest rates. But recent years have brought a triple whammy: the COVID-19 pandemic, the war in Ukraine, and a global surge in interest rates.
When the pandemic hit, France’s government opened its coffers to subsidize businesses and shield citizens from economic fallout. Then, after Russia’s invasion of Ukraine in 2022, energy prices skyrocketed, prompting even more government spending to protect households from higher costs. All told, French debt jumped from 98% of GDP in 2019 to a staggering 114% today. As a result, the annual deficit ballooned beyond forecasts, hitting 5.8% last year—well above the EU’s 3% ceiling, as highlighted by the Associated Press.
These mounting deficits have had immediate consequences. Investors, wary of France’s fiscal trajectory, have sold off the country’s bonds. The yield on France’s 10-year bond—a key measure of risk—has climbed to 3.34%, up from below zero in 2021. That’s now higher than Greece’s 3.25%, a country once synonymous with eurozone debt woes. The selloff has led rating agencies to downgrade France’s creditworthiness, further raising borrowing costs for both the government and businesses, since many commercial loans are pegged to government bond rates.
Yet, perhaps the most pressing challenge is not economic, but political. After President Emmanuel Macron called snap parliamentary elections last year, the National Assembly splintered into left, centrist, and right-wing factions. No group holds enough power to push through tough decisions on either raising taxes or cutting spending. This gridlock has triggered four changes of government in less than a year—an upheaval unprecedented in France’s Fifth Republic, established by Charles de Gaulle in 1958. As the Associated Press notes, this political paralysis has left President Macron struggling to rein in the runaway deficit.
The latest casualty of this turmoil was the government’s controversial plan to raise the baseline retirement age from 62 to 64. Prime Minister Sebastien Lecornu, Macron’s fourth prime minister in just 13 months, narrowly avoided being ousted by pausing the pension reform. While this move may have preserved his job, it did little to address the underlying fiscal crisis. Instead, France now faces weeks of heated debate over a budget that proposes only a modest reduction in the deficit to 4.7%—still well above EU rules.
The gridlock in Paris is not just a domestic headache; it has far-reaching implications for the European Union and beyond. France and Germany, as the EU’s two largest economies, have traditionally set the agenda for the 27-member bloc. Stable Franco-German leadership is considered essential for addressing Europe’s most pressing challenges: supporting Ukraine, deterring Russian aggression, countering economic threats from China, and responding to U.S. tariffs on European goods. As Carsten Brzeski, chief eurozone economist at ING bank, put it, “Ultimately, Europe requires a robust Franco-German axis to address its numerous challenges.”
But with France mired in political and fiscal uncertainty, Europe’s ability to act decisively is hampered. The country’s paralysis makes it harder for the EU to marshal resources to help Ukraine, invest in productivity and growth, or respond to external economic shocks. Meanwhile, the International Monetary Fund has singled out France—alongside Brazil, China, and the United States—as a country where debt levels are likely to rise significantly in the coming years.
France’s debt level, at 114% of GDP, is approaching that of the United States, which stands at 119%. However, the U.S. enjoys two key advantages: stronger economic growth and the status of the dollar as the world’s dominant reserve currency. The dollar’s global reach helps Washington borrow more easily and at lower costs—an edge France simply doesn’t have.
Despite these worrying trends, most analysts agree that France is not currently at risk of defaulting on its debts. The real danger lies in the possibility of a “death spiral,” where rising borrowing costs lead investors to question France’s ability to repay, which in turn pushes rates even higher. This scenario played out in Greece during the 2010-11 eurozone debt crisis, eventually forcing Athens into default and triggering a continent-wide panic. Italy, too, was compelled to install a technocratic government under Mario Monti to implement painful reforms and restore market confidence.
Since that crisis, the European Union has put in place new safeguards. There’s now a bailout fund and the European Central Bank (ECB) has a financial backstop, ready to support member countries by purchasing their bonds on the secondary market. However, as the Associated Press points out, this safety net is only available in cases of “unwarranted” market turmoil—meaning the ECB is unlikely to bail out governments that refuse to take corrective action themselves.
The current stalemate in France’s parliament illustrates just how difficult those corrective actions can be. Both the left-wing alliance and the right-wing National Rally, led by Marine Le Pen, have resisted even modest deficit reductions, hoping to force President Macron into new elections or resignation. Meanwhile, ongoing debates over the budget threaten to drag on for weeks, prolonging uncertainty for businesses and investors alike.
The stakes are high not just for France, but for the entire European project. As Europe faces down threats from Russia, navigates economic competition with China, and responds to shifting U.S. trade policies, the need for stable and effective leadership has never been greater. Yet, for now, France’s political and fiscal woes have left it struggling to play its traditional role as a linchpin of European stability.
As the world watches Paris with a mix of concern and impatience, one thing is clear: resolving France’s financial and political deadlock will require compromise, courage, and a willingness to make tough choices. The coming months will reveal whether France’s leaders—and its fractious parliament—are up to the task.
