France’s deficit sets off IMF alarm

France has reached the point in a budget story where the numbers begin to tell their own tale. The deficit is running at 5.2% of GDP, according to the IMF. Public debt stands at €3.54 trillion (Eurostat, INSEE). The 10-year borrowing rate is close to 4% (IG). When the Fund published its annual assessment of France on 22 July, the message was plain enough: Paris is still spending far more than it raises, and the gap is not closing (Bloomberg).

The IMF now expects France’s 2026 deficit to come in at 5.2% of GDP, worse than the government’s own 5% target and barely below the 5.1% recorded in 2025. Debt rose by €75.6 billion in the first quarter alone, bringing it to 117.6% of GDP. Two years ago, it was 112.6%.

That would be less troubling if France were still borrowing as cheaply as a core eurozone state expects to borrow. It is not.

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, is around 3.93%. The spread, or gap, between French and German borrowing costs has widened to about 80 basis points, meaning hundredths of a percentage point, from roughly 60 (FAZ). Investors are now charging France visibly more for the privilege of borrowing.

That cost does not sit in some abstract market column. It lands back inside the budget. BNP Paribas has estimated that, if borrowing costs remain this high, the extra interest bill would consume about 60% of the spending increase planned for the 2027 budget (BNP Paribas). Put another way, for every ten euro France intended to add to hospitals, schools or defence, six would go instead to bondholders.

The French government knows the squeeze is tightening. Economy Minister Roland Lescure has said the 5% deficit target will be difficult. Budget Minister David Amiel has said €3 billion in further cuts are needed, on top of €6 billion in emergency savings already made (Euronext/Reuters).

The IMF wants a sharper correction: cuts or tax increases worth about 0.8% of GDP every year through 2029, once the ups and downs of the economic cycle are stripped out. Economists call that structural adjustment (IMF). With growth forecast at just 0.6% this year (Boursorama), that kind of adjustment cannot be made painlessly. It means cuts into services people actually use.

Why the eurozone is watching

France is the eurozone’s second-largest economy, so this is not just a French budget argument. Higher French borrowing costs do not automatically push up rates in Madrid, Rome or Dublin. But they change how investors think about risk across the bloc, and they narrow the space available to the ECB, the European Central Bank that sets interest rates for the 20 eurozone countries.

The ECB created a bond-market backstop in 2022 to intervene when market stress stops monetary policy from working properly (ECB). French spreads have not reached that point. Still, the ECB’s room to cut rates becomes more constrained when one of the eurozone’s anchor economies starts to lose fiscal credibility.

France has also been under the EU’s Excessive Deficit Procedure since July 2024, alongside six other member states (Council of the EU). That is the formal process triggered when a country’s deficit breaches 3% of GDP. The uncomfortable comparison is Italy. French and Italian borrowing costs are moving closer together, and Italian Economy Minister Giancarlo Giorgetti expects Italy to leave its own deficit procedure before France does (Il Messaggero).

For years, France borrowed much more like Germany than Italy. The market is now making a different judgement about French risk.

The argument over where the cuts fall is already moving from spreadsheets into daily life. Options being discussed include higher medical deductibles and lower drug reimbursements, measures that would push more costs onto households with the greatest healthcare needs (Le Figaro). Economist Olivier Blanchard has argued that stabilising France’s debt requires closing the gap between revenue and spending, before interest payments, by about €120 billion, and that the budget process itself increases the risk of a debt crisis (Le Monde).

France is still operating inside ordinary EU fiscal rules. This is not a bailout story. But it is a credibility story, and credibility is already becoming expensive. Each quarter without correction leaves a wider deficit, a heavier interest bill and a harder political choice over who pays: patients facing higher medical charges, public workers working within tighter budgets, or future taxpayers carrying a larger debt.