Prime Minister Sébastien Lecornu: Resignation after only 27 days – France's government crisis and the lessons for Germany

Politically paralyzed, financially on the brink: What Germany MUST learn from France's crisis

A political earthquake shakes France: After only 27 days in office, Prime Minister Sébastien Lecornu throws in the towel – an unprecedented event in the history of the Fifth Republic. His resignation, shortly after the presentation of a barely changed cabinet, is far more than just a government crisis. It is a symptom of a profound public and financial crisis that has paralyzed France for years and has now reached a dangerous turning point.

Behind Lecornu's rapid collapse lies an explosive mix of political stalemate, a crushing national debt of over €3.3 trillion, and an oversized welfare state that is blocking urgently needed reforms. While the fragmented National Assembly is nipping any attempt at austerity in the bud, rating agencies are already warning of a deterioration in the country's credit rating, and interest rates on French government bonds are rising threateningly.

This development is a warning shot for all of Europe, but especially for Germany. The crisis facing our most important partner raises urgent questions: How did the Eurozone's second-largest economy get into this situation? Is a new euro debt crisis looming, one that could also drag us down? And what lessons must Germany learn from this tragedy while its own debt is also rising? The events in Paris are an urgent wake-up call not to take the stability of its own public finances for granted.

Unaffordable welfare state? The real reason for France's ongoing crisis – and the risky parallel with Germany

After less than a month in office, French Prime Minister Sébastien Lecornu unexpectedly resigned. President Emmanuel Macron had already accepted his resignation, the Élysée Palace announced. The resignation came just hours after the presentation of his new government, representing a virtually unprecedented event in the history of the Fifth French Republic.

The opposition had sharply criticized the largely unchanged government team and again threatened to overthrow the government. Right-wing populist party leader Jordan Bardella of the Rassemblement National called for immediate new elections, something Macron had previously ruled out. Lecornu realized that he had no political room for maneuver and that the minority government had little chance of getting the urgently needed budget through parliament.

The structural crisis of French public finances

The real reason for the ongoing government crisis lies in France's dramatic debt situation. At approximately €3.3 trillion, France has the highest absolute national debt in the European Union. This corresponds to approximately 114 percent of gross domestic product. Only Greece, at 152.5 percent, and Italy, at 137 percent, have higher debt levels.

The French budget deficit amounted to almost €170 billion in 2024, equivalent to 5.8 percent of gross domestic product. This significantly exceeds the European stability criteria of three percent. A deficit ratio of 5.4 percent is planned for 2025, which is still well above the EU target.

Since 1999, the year the Eurozone was founded, France has met the three percent criterion only in a very few years. The last balanced budget was over 50 years ago. National debt has increased by one trillion euros since 2017. Each French citizen has an annual government deficit of 2,400 euros and a debt level of 55,000 euros.

Political instability due to the division of the National Assembly

The snap elections in summer 2024, which Macron called after his defeat in the European elections, did not produce the clear majority he had hoped for. Instead, the National Assembly is split into three strong, almost equally large blocs:

The left-wing alliance Nouveau Front Populaire emerged as the strongest party with 178 seats, followed by Macron's centrist Ensemble with 150 seats and the right-wing nationalist Rassemblement National with 125. The threshold for an absolute majority is 289 seats. This political stalemate is leading to paralysis, votes of no confidence, and a significant attrition of government personnel.

Since Macron took office as president in 2017, 158 ministers have served. The current situation represents the ninth government since Macron took office. There is no apparent willingness to form a coalition between the three political camps, making the passage of the urgently needed austerity budget virtually impossible.

The failed austerity program and its dimensions

Former Prime Minister François Bayrou had presented a drastic austerity plan to break France's debt spiral. It included savings and tax increases totaling €43.8 billion. The deficit was to be reduced from 5.8 percent to 4.6 percent in order to return it to below the EU limit of 3 percent by 2029.

The austerity plan called for a freeze on pensions and social benefits, the elimination of two public holidays to increase working hours, the elimination of 3,000 government jobs, and an increase in the corporate tax rate for large, profitable companies to 41.2 percent. Only spending on debt service and the military was to increase. The opposition and unions put up massive resistance to these measures, ultimately leading to Bayrou's ouster in a vote of no confidence.

Our EU and Germany expertise in business development, sales and marketing - Image: Xpert.Digital

Industry focus: B2B, digitalization (from AI to XR), mechanical engineering, logistics, renewable energies and industry

More about it here:

• Xpert Business Hub

A topic hub with insights and expertise:

• Knowledge platform on the global and regional economy, innovation and industry-specific trends
• Collection of analyses, impulses and background information from our focus areas
• A place for expertise and information on current developments in business and technology
• Topic hub for companies that want to learn about markets, digitalization and industry innovations

France's oversized welfare state

France's structural problems are rooted in its oversized welfare state. Social spending accounts for almost a third of total economic output. The public sector accounts for almost 60 percent of gross domestic product. By comparison, Germany's social spending ratio is around 25 percent of GDP.

This structure has evolved over time. Since the 1970s, the French welfare state has expanded continuously. This was followed by costly nationalization programs and the introduction of retirement at age 60. The French have internalized a subsidy mentality that is difficult to break. Even the increase in the retirement age from 62 to 64 in 2023 was only achievable by applying Article 49.3 of the Constitution, bypassing Parliament.

Deterioration of creditworthiness and rising interest rates

Political instability and the dramatic debt situation are already impacting France's creditworthiness. Rating agency Fitch downgraded France's government bonds from AA- to A+ in September 2025. Standard & Poor's rates France AA- with a negative outlook, while Moody's has set the rating at Aa3 with a stable outlook.

The risk premiums on French government bonds over German Bunds rose to almost 80 basis points. French ten-year government bonds now carry interest rates of over 3.5 percent – ​​higher than Spanish bonds and only slightly below Italian bonds. France already pays around €67 to €70 billion per year in interest payments alone, and this could soon exceed €100 billion.

Danger of a new euro debt crisis

Economists are intensely debating the potential contagion risks of a French debt crisis to other eurozone countries. With a GDP of €2.9 trillion, France is the second-largest economy in the eurozone. A loss of confidence could lead to contagion effects in Italy, Spain, and other highly indebted countries.

The European Central Bank has a tool, the Transmission Protection Instrument, to prevent excessive contagion. However, this tool is subject to strict conditions, including compliance with EU fiscal rules – a circumstance that does not currently apply to France. TPI has never been used to date.

In the short term, however, many economists do not yet see an acute risk of contagion. The French crisis is entirely home-made. Despite its high debt ratio, Italy is currently considered almost unusually stable. The current accounts of the eurozone countries are more balanced than during the last debt crisis.

Germany as a warning example

Germany cannot rest easy, as its debt situation is also continuously deteriorating. At the end of 2024, Germany's national debt amounted to approximately €2.7 trillion, corresponding to a debt ratio of 62.5 percent of GDP. The Federal Ministry of Finance forecasts a further deterioration to 63.2 and 63.0 percent in 2025 and 2026, respectively.

Germany's debt level is already above the Maastricht threshold of 60 percent. Per capita debt reached approximately €29,650 at the end of 2024. The main reasons for this increase are high spending on defense and social benefits. The Bundeswehr's special fund alone increased debt by a further €11.2 billion in 2024.

In addition, Germany assumes significant liability risks from European debt instruments. The German share of the financing for the Next Generation EU Corona recovery plan amounts to €109 billion for repayments plus €134 billion in guarantees. In total, these undisclosed amounts correspond to more than 10 percent of Germany's current national debt.

The European stability criteria and their implementation

The European stability criteria were established in the Maastricht Treaty in 1992. They limit the annual budget deficit to three percent of GDP and total debt to 60 percent of GDP. In the event of violations, the EU Commission can initiate an excessive deficit procedure.

Ironically, Germany and France themselves were the first major deficit offenders when they failed to comply with the Maastricht criteria during the 2001/2002 recession. After the financial crisis, the Stability Pact was tightened with the Six-Pack in 2011. Sanctions now take effect earlier and more consistently.

The EU Commission initiated excessive deficit procedures against France in 2022. Nevertheless, no sustainable improvement in French public finances has been achieved. This highlights the structural limitations of European fiscal rules for systemically important countries like France.

Lessons for Germany and the Eurozone

The French crisis highlights several important lessons for Germany and the Eurozone:

First, even large economies can get trapped in a debt spiral by decades of refusing to implement reforms, making it politically almost impossible to escape. France's oversized welfare state and the associated subsidy mentality of the population make necessary structural reforms extremely difficult.

Second, political instability leads to a vicious circle: Markets lose confidence, interest rates rise, the debt burden becomes even more oppressive, and further austerity measures become necessary, which in turn provokes political resistance. Germany should therefore take advantage of its relative political stability to implement structural reforms in a timely manner.

Third, it is becoming clear that the European stability criteria are difficult to enforce in systemically important countries. As the largest economy in the Eurozone, Germany bears a special responsibility to serve as a positive example of sound public finances.

The debt brake in the German constitution proves to be a far-sighted decision in light of developments in France. However, it alone is not enough. Germany must also address structural reforms in its social security systems before demographic developments lead to a French scenario.

A welfare state can only be sustainably financed if revenues are adequate and the spending structure is demographically resilient. France's crisis should serve as a warning to Germany to set the course for sound public finances in a timely manner. Only in this way can Germany fulfill its role as an anchor of stability in the eurozone and avoid similar crises.

The French government crisis is more than just a domestic political problem of a neighboring country. It is a warning signal to all European countries that structural problems cannot be postponed indefinitely without jeopardizing political and economic stability.

☑️ Our business language is English or German

☑️ NEW: Correspondence in your national language!

Konrad Wolfenstein

I would be happy to serve you and my team as a personal advisor.

You can contact me by filling out the contact form or simply call me on +49 89 89 674 804 (Munich) . My email address is: wolfenstein ∂ xpert.digital

I'm looking forward to our joint project.

☑️ SME support in strategy, consulting, planning and implementation

☑️ Creation or realignment of the digital strategy and digitalization

☑️ Expansion and optimization of international sales processes

☑️ Global & Digital B2B trading platforms

☑️ Pioneer Business Development / Marketing / PR / Trade Fairs

AI & XR 3D Rendering Machine: Fivefold expertise from Xpert.Digital in a comprehensive service package, R&D XR, PR & SEM - Image: Xpert.Digital

Xpert.Digital has in-depth knowledge of various industries. This allows us to develop tailor-made strategies that are tailored precisely to the requirements and challenges of your specific market segment. By continually analyzing market trends and following industry developments, we can act with foresight and offer innovative solutions. Through the combination of experience and knowledge, we generate added value and give our customers a decisive competitive advantage.

More about it here:

• Use the 5x expertise of Xpert.Digital in one package - starting at just €500/month