Across the world’s most advanced economies, the specter of government debt is looming larger than ever, casting a long shadow over political stability and economic prospects. Recent events in France and the United Kingdom have thrust the issue into sharp relief, with both countries facing a volatile mix of surging deficits, public unrest, and political upheaval. The situation is so acute that it has prompted international observers to warn that Washington’s own spiraling debt could lead to similar crises if left unchecked, as Jessica Riedl of the Manhattan Institute recently noted.
France, the world’s seventh-largest economy, finds itself in an extraordinary position. On September 17, 2025, the yield on France’s 10-year government bonds reached 3.5%, surpassing even those of Greece at 3.3%—a country that defaulted on the International Monetary Fund just a decade ago, according to The Economist. Even more striking, France now pays higher interest on its government bonds than some of its own corporate giants, such as LVMH and L’Oréal, for debt of similar maturity. This inversion, where investors regard the French state as a riskier borrower than private companies, is a telling sign of just how much confidence has eroded in the government’s fiscal management.
The roots of France’s predicament run deep. The country’s debt-to-GDP ratio stands at 116.3%, with a 3.2 percentage point increase in 2024 alone, as reported by The Economist. Budget deficits hover near 6%, and the outlook is for continued debt growth. The government’s spending is immense—almost three-fifths of GDP—while efforts to rein in costs have met fierce resistance. The most visible flashpoint has been President Emmanuel Macron’s push to raise the legal retirement age, which sparked massive protests in Paris on March 28, 2023. The unrest has only intensified since, with industrial action and demonstrations becoming a near-constant feature of French life. As Rothschild & Co Wealth Management UK Limited observed, the immediate cause of the current instability is the government’s inability to implement tougher budget reforms, reflecting a broader reluctance among the French public to accept longer working hours and greater labor market flexibility.
Political instability has compounded France’s fiscal woes. In just the past twelve months, the country has cycled through four prime ministers, and there is widespread speculation that another parliamentary election—the third since mid-2022—may be imminent. Marine Le Pen’s National Rally party is waiting in the wings, poised to capitalize on public discontent should the government falter further. The sense of crisis is palpable, with credit downgrades and soaring bond yields fueling a feedback loop of uncertainty.
The United Kingdom, though facing a different set of circumstances, is hardly immune to similar pressures. The UK’s government debt now exceeds 100% of GDP—the highest level since the early 1960s—after unprecedented pandemic-era borrowing, as highlighted in The Economist. Prime Minister Starmer’s government boasts a large parliamentary majority, but internal party divisions and a series of political missteps have eroded his authority. Despite plans to raise taxes in November 2025, the government has struggled to implement even modest welfare reforms. The UK’s fiscal challenges are exacerbated by a reliance on index-linked bonds, whose payouts have ballooned due to high inflation, resulting in a larger interest bill than France’s despite lower overall spending (closer to two-fifths of GDP).
Both countries’ struggles have sent ripples through global debt markets. The United States, for its part, holds $37 trillion in government debt—about 30% of all global government obligations—and its debt-to-GDP ratio stands at 122%. This figure is projected to rise faster than any other G7 nation over the next five years, driven by military spending, tax cuts, pandemic relief, and underfunded entitlement programs like Medicare. While the dollar’s status as the world’s reserve currency affords the U.S. some insulation, the underlying trends are worrisome. As Riedl warns, “Washington’s spiraling debt trends are simply unsustainable. If you doubt this, consider the fiscal crises, protests and political chaos occurring beyond our shores.”
Meanwhile, Japan remains the outlier among developed economies, with government debt reaching an eye-watering 235% of GDP. Even after accounting for the Bank of Japan’s bond holdings, the net debt-to-GDP ratio is a daunting 134%. Years of economic stagnation, repeated stimulus measures, and disaster responses have locked Japan into a cycle of high leverage, with projections indicating the debt ratio will remain near 250% through 2029.
Despite these daunting numbers, financial markets have not yet signaled outright panic. French and UK stock indices have actually outperformed global averages in common currency terms this year, reflecting the global reach of many listed companies. Bond markets, while underperforming, have not experienced dramatic sell-offs. The spread between French and German 10-year yields, and between UK and German yields, has widened by less than a quarter of a percentage point. As Rothschild & Co notes, “A genuine ‘crisis’ is not inevitable in either case, and the countries’ fiscal prospects are less one-sided than they are widely said to be.”
What, then, is the way forward? The answer may lie in the delicate balance between revenue growth and spending restraint. Even a modest positive gap—just half a percentage point per year—between the rate of growth in government revenues and spending could, over time, significantly reduce debt ratios in both France and the UK. This would require political will and a willingness among voters to accept some tough choices, but it is far from impossible.
For now, the standoff between political reality and economic necessity continues. In France, the inability to implement reform has left the government adrift, with populist forces circling. In the UK, fiscal rules and inflation-linked debt have created a straitjacket for policymakers. Both countries serve as a cautionary tale for others, especially the United States, where the warning signs are growing harder to ignore.
As the world watches, the fate of these debt-laden democracies hangs in the balance—proof that, in the end, even the mightiest economies cannot outrun the consequences of unsustainable borrowing forever.
