France is once again at the center of Europe’s economic concerns. While the country has long prided itself on generous social protections and steady growth, the fiscal underpinnings of that system have begun to unravel. A mix of expansive public spending, revenue shortfalls, and emergency outlays has pushed government debt and deficits to historic levels, leaving policymakers scrambling for solutions.
At first glance, France’s economy does not look like one in crisis. It remains the eurozone’s second largest after Germany, with a sizeable industrial base and resilient household consumption. Yet the nation has developed a severe fiscal imbalance. Public spending now consumes more than half of national output—57 percent in 2024—making France the highest spender in Europe relative to GDP. Healthcare, pensions, education, and unemployment benefits all contribute to this burden, reflecting a political culture deeply committed to maintaining its welfare state.
The Covid-19 pandemic and the energy shock following Russia’s invasion of Ukraine pushed this model to the breaking point. Since 2020, the French state has spent over €240 billion in exceptional measures to shield households and businesses, according to the country’s national auditor. While these programs softened the immediate blow, they left the public purse stretched thin.
On the revenue side, President Emmanuel Macron’s tax policies further constrained the state. In his effort to improve France’s competitiveness and attract investment, Macron enacted tax reductions for businesses and high earners, including curbing a longstanding wealth tax. While welcomed by investors, the result was a significant revenue loss—an estimated €50 billion annually—without the surge in private investment that policymakers had hoped for.
The combined effect is stark. In 2024, France’s budget deficit hit €168.6 billion, equal to 5.8 percent of GDP, far above the 3 percent threshold required under eurozone rules. Debt has ballooned to €3.35 trillion, or 116 percent of output. Servicing that debt has become increasingly costly: annual interest payments are projected at €66 billion, more than double the figure in 2020 and larger than France’s budget for education or defense.
Markets have noticed. Investors now demand higher yields to hold French bonds, pushing borrowing costs above those of Greece and significantly above those of Germany. Although France still borrows at lower rates than Britain or the United States, its weaker growth prospects make the trend worrying. Without corrective action, interest costs could soon become the single largest item in the French budget.
For now, France remains far from insolvency. It retains the ability to borrow freely and still commands international confidence as a “too big to fail” economy. Yet the trajectory is troubling. With public finances deteriorating, the government has little margin for error. The next phase of the crisis will depend not just on fiscal arithmetic, but on political decisions in Paris—a subject explored in Part 2.