The French government projects the budgetary burden of state debt to reach 59.3 billion euros in 2026, an increase from the revised 2025 estimate of 52.0 billion euros. This rise is driven by a combination of a larger debt stock, the progressive refinancing of debt at higher rates, and the inflation-indexing of certain bonds.
According to Kevin Thozet of Carmignac, France is now one of the countries most sensitive to market movements. Thozet notes that France possesses one of the highest public debt-to-GDP ratios and the largest deficit in the eurozone, alongside a highly fragmented Parliament, leaving the nation particularly exposed to factors that drive bond yields upward.
Drivers of Rising Debt Costs
Official budget documents for “programme 117” break down the 7.2 billion euro increase in debt charges (excluding treasury) between 2025 and 2026 into four specific factors. In this program, the charge for debt excluding treasury rises from 50.826 billion euros in the revised 2025 estimate to 58.016 billion euros in 2026:
- Volume: +4.1 Md€ due to more debt requiring remuneration.
- Rates: +2.8 Md€ resulting from more expensive new issuances and refinancing.
- Inflation: +0.6 Md€ from indexed obligations.
- Calendar: -0.4 Md€ based on emission structures and payment dates.
The average effective interest rate for French debt currently stands at 2.2%, while the average rate for debt issued this year is 3.5%. OATs are currently trading around 4.3%. Thozet warns that the net interest charge has doubled over the last five years and is expected to double again over the next five, potentially becoming the state’s primary expenditure.
Deficit Reduction Requires 85 Billion Euro Adjustment
With a public deficit exceeding 5% of GDP, Thozet calculates that returning to a 3% deficit by 2029 would require an adjustment of approximately 85 billion euros compared to the current trajectory.
- Jean-Luc Mélenchon: Proposed canceling roughly 20% of total debt; however, Thozet suggests that if this had been implemented in July, debt would have already increased by 20 billion euros since then.
Market Outlook for 2026
The weighted average rate of OATs issued in 2026 was 3.50% as of late August. By September 29, 2026, the 10-year reference rate (TEC 10) reached 4.74%.
The long-term stability of the debt remains uncertain. Thozet points out that if interest rates remain durably higher than nominal growth—citing a scenario of 1% real growth and 2% inflation—a “snowball effect” will begin to work against the state. It is unclear which candidate's economic culture will prevail or whether structural reforms to the labor market and pensions will be implemented.
Lecornu Seeks 54 Billion Euros to Stabilize Deficit
Lecornu mentioned a required effort of 54 billion euros, or roughly 1.8% of GDP, to stabilize the deficit.
It is unclear if these targets can be met and which political leader will implement the necessary adjustments.
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