France’s 5.2% deficit triggers IMF alarm

5.2% of GDP in deficit (IMF). €3.54 trillion in debt (Eurostat, INSEE). A 10-year borrowing rate near 4% (IG). The IMF published its annual health check of France on 22 July and delivered a blunt verdict: the gap between what the government spends and what it collects is not closing (Bloomberg). The Fund projects France's 2026 deficit at 5.2% of GDP, wider than the government's own 5% target and barely changed from 5.1% in 2025. Public debt rose by €75.6 billion in the first quarter alone, reaching 117.6% of GDP. Two years ago that ratio was 112.6%.

This would matter less if France could still borrow cheaply. Instead, its borrowing costs have risen sharply.

How higher yields eat the budget

France's 10-year government bond yield (the interest rate investors demand to lend to Paris for a decade) sits near 3.93%. The spread (the gap between French and German borrowing costs) has widened to around 80 basis points (hundredths of a percentage point), up from roughly 60 (FAZ). Investors now charge measurably more to lend to France.

That price increase feeds straight back into the budget. BNP Paribas estimated that if borrowing costs stay this high, the extra interest bill would swallow around 60% of the spending increase planned for the 2027 budget (BNP Paribas). For every ten euros of new spending France planned on hospitals, schools or defence, six would go to bondholders instead.

The government acknowledges the squeeze. Economy Minister Roland Lescure called the 5% deficit target difficult; Budget Minister David Amiel said €3 billion in additional cuts were needed on top of €6 billion in emergency savings already taken (Euronext/Reuters). The IMF's prescription is steeper: cuts or tax rises worth about 0.8% of GDP every year through 2029, after stripping out the effects of the economic cycle (what economists call structural adjustment) (IMF). With the economy forecast to grow just 0.6% this year (Boursorama), hitting that target means cutting into services people rely on.

Why the eurozone is watching

France is the eurozone's second-largest economy. Higher French borrowing costs don't automatically raise rates in Madrid or Rome. But they shift how investors price risk across the bloc and limit what the ECB (the European Central Bank, which sets interest rates for the 20 eurozone countries) can do.

The ECB built a backstop tool in 2022 to step in when bond-market stress disrupts monetary policy (ECB). French spreads haven't triggered it, but the ECB's room to cut rates shrinks when a large member state's fiscal credibility is slipping.

France has been under the EU's Excessive Deficit Procedure (the formal process triggered when a country's deficit exceeds 3% of GDP) since July 2024, alongside six other member states (Council of the EU). The sharpest comparison is Italy. French and Italian borrowing costs are converging, and Italian Economy Minister Giancarlo Giorgetti expects Italy to exit its own deficit procedure before France does (Il Messaggero). For a country that long borrowed at rates closer to Germany's than Italy's, the shift captures how markets now rank French fiscal risk.

The debate over where French cuts fall is already getting concrete: higher medical deductibles, lower drug reimbursements, measures that would push costs onto households with the greatest healthcare needs (Le Figaro). Economist Olivier Blanchard argues that stabilising France's debt requires closing the gap between revenue and spending (before interest payments) by around €120 billion, and that France's budget process itself raises crisis risk (Le Monde).

France is negotiating inside ordinary EU fiscal rules, not facing a bailout. But it has a credibility problem that is already making delay more expensive. Each quarter without correction widens the deficit, raises the interest bill, and forces harder choices about who pays: patients facing higher medical costs, public workers whose budgets get squeezed, or future taxpayers inheriting a larger debt.