French public debt reached a new record, jumping in the second quarter of the year to 3,595.5 billion euros, equal to 119% of GDP, up from 117.5% in the first quarter. This is the highest value since 1946. But the race doesn’t end there. In fact, the government foresees further years of deficit: in 2026 the deficit should stand at 5.4% of GDP, against 5.1% in 2025, and then fall to 5% in 2027. Only in 2029 is it expected to return within the 3% threshold indicated by Brussels. Assuming the goal is achieved. The result is that in the short and medium term the debt will continue to grow. The Ministry of Economy has estimated that it will reach up to 121.7% of GDP in 2027 “as a consequence of a deficit that remains high”.
According to Mathieu Plane, economist at the Observatoire français des conjonctures économiques (Ofce), the French debt situation is “rather delicate because we are neither in an area of stability nor in one of decline”. Plane recalls that in 2007 the debt represented just 65.5%, but since then “it has almost doubled” due to “macroeconomic shocks”.
Public finance expert François Ecalle observes that between 2019 and 2025 France recorded “the largest increase” in debt to GDP “after Finland” and “this is explained by the level of the deficit”, a responsibility he attributes to “most governments of the last 50 years”. If we take the debt/GDP ratio today, French debt is second only to that of two historically high-debt countries such as Italy (138.9%) and Greece (143.1%).
French OATs do worse than Italian BTPs
A rather surprising situation has arisen on the markets in recent weeks. In fact, 10-year French government bonds, called Oat, yield more than their Italian BTP counterparts. This means that investors consider Italy’s financial trajectory to be more reassuring than that of France, despite its overall higher debt. At the time of writing, the interest on 10-year OATs is equal to 4.7%, while BTPs stand at 4.5-4.6% with a spread of approximately 15-20 basis points. A difference of 0.1-0.2% is marginal, but the underlying figure is indeed quite notable and reflects concerns about the French fiscal and political situation.
What’s Happening in the Bond Market and Why Things “Go Bad”
However, the situation must be seen in a context of great tensions on the global bond market. Just a few months ago, 10-year BTPs yielded around 3.7-3.8% while OATs were generally a little less profitable. Today yields soared, starting with those of US Treasuries which broke through the psychological threshold of 5%.
If interest rates rise, states pay more to refinance the debt. The increase in yields is due to various factors: the energy shock linked to the war in the Middle East which pushed central banks to raise rates to combat inflation; the increase in deficits and financing needs of the States; and finally the growing amount of debt issued by large companies to finance huge investments in artificial intelligence. The fact is that in such a delicate context, the Oat issued by Paris are suffering more than other government bonds. And the deficit bill becomes increasingly higher.