The French crisis: Why France's debt is so dangerous – for France, Germany and the EU as a whole

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Published on: September 8, 2025 / Updated on: September 8, 2025 – Author: Konrad Wolfenstein

The French crisis: Why France's debt is so dangerous – for France, Germany and the EU as a whole – Image: Xpert.Digital

Worse than Greece? France's debt bomb threatens the entire euro

Political chaos and record debt: This is the real reason for France's mega-crisis

France, the Eurozone's second-largest economy, is on the verge of a deep sovereign debt crisis. With record debt of over €3.3 trillion and a political deadlock that has paralyzed the country since the new elections, a dangerous dynamic has developed. Following the failure of a drastic austerity budget and the fall of the government, Paris is sinking into political chaos, while the interest burden on the national debt is exploding, becoming the largest item in the budget for the first time – even ahead of education and defense.

But this crisis is no longer just a French problem. It is developing into a serious threat to the stability of Germany and the entire European Union. Rising interest rates, fears of a sell-off of French government bonds, and growing concerns about a new, even more devastating euro crisis are unsettling the financial markets. Experts are urgently warning: What is happening in France is more than just a national budget crisis—it is an existential test for the resilience of the euro and the future of European integration.

55,000 euros of debt per capita: The devastating extent of the French crisis – and what threatens us now

Why is France in such a serious debt crisis? How did the situation develop into a threat not only to the country itself, but to Germany and the entire European Union? These questions are occupying experts, politicians, and citizens alike as a dramatic political and financial crisis unfolds in Paris.

The dimensions of the French debt crisis

How high is France's national debt really? The figures are indeed alarming. At over €3.3 trillion, France has the highest absolute national debt of any country in the Eurozone. This corresponds to approximately 114 percent of gross domestic product. This places France in the third most indebted country in the Eurozone, after Greece and Italy.

What do these figures mean in concrete terms? According to calculations by ZEW economist Friedrich Heinemann, every French citizen, from newborns to retirees, is responsible for an annual government deficit of €2,400 and a debt level of €55,000. National debt has increased by one trillion euros since 2017 – in Germany, the increase in debt over the same period was only half that.

How has the budget deficit developed? At 5.8 percent of GDP, the French budget deficit is well above the European threshold 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 in only a very few years.

The political blockade and its consequences

Why can't France break out of its debt spiral? The main problem lies in political incapacity. Since the snap elections in the summer of 2024, when President Emmanuel Macron dissolved the lower house of parliament after a defeat in the European elections, neither the presidential camp nor the left or right blocs have a majority.

What was Prime Minister Bayrou's plan? François Bayrou presented a drastic austerity budget that proposed savings of €43.8 billion. The plan included several unpopular measures: pensions and social spending were to be frozen, 3,000 civil service jobs were to be eliminated, and even two public holidays, including Easter Monday, were to be abolished. It also proposed tax increases for profitable companies with revenues exceeding €3 billion.

Why did Bayrou's austerity measures fail? His government lacked a majority in parliament. When he put forward a vote of confidence on September 8, 2025, all opposition parties—from the far-right National Rally to the Socialists, the Greens, and the Communists—announced they would vote against him. The result was predictable: The government collapsed, and France sank even deeper into political crisis.

Why the interest burden becomes a problem

What role do rising interest rates play? The financing costs of French government debt have risen dramatically. France now has to pay higher interest rates on new government bonds than Greece and almost as much as Italy. The interest burden will become the largest budget item for the first time in 2025 – even ahead of education or defense. By 2025, France will have to spend €67 billion just on debt service.

How are the financial markets reacting? The risk premium for French government bonds compared to German Bunds rose significantly. The yields on French government bonds converged with those of Italian bonds, which means that refinancing the national debt is becoming increasingly expensive for France. This trend is self-reinforcing: Higher interest rates lead to higher debt, which in turn can lead to even higher interest rates.

The threat to Germany and Europe

Why is the French crisis also dangerous for Germany? ZEW economist Friedrich Heinemann urgently warns of the consequences for Germany and the entire eurozone. Distrust of the euro as a whole could grow if France, the eurozone's second-largest economy, were to fall into a debt crisis. This would become a problem for the entire eurozone, including Germany.

How specifically could Germany be affected? There are several transmission channels. First, the increased German government bond yields also increase the cost of German government debt, including the so-called "Sondervermögen" (special fund). Interest rates on government bonds in the Eurozone are linked, so higher French interest rates also affect Germany.

What role does the European Central Bank play? The ECB is finding itself in a difficult position. French fiscal populists hope that the ECB will provide the country with any loan it needs. However, this would undermine the stability of the euro. Should a sell-off of French government bonds occur, the ECB might have to massively purchase French bonds through its Transmission Protection Instrument (TPI).

What does this mean for the EU's creditworthiness? As France's credit rating declines, so does the creditworthiness of the European Union itself. This could lead to massive interest rate premiums on the financial markets. Since the EU is now taking on debt itself, for example, through the EU Recovery Fund, the European financial architecture is under additional strain.

The structural problems of the French economy

What underlying problems does the French economy face? France is grappling with similar structural challenges as Germany: the pressure to transform due to new technologies, growing competition from China, and high energy prices. The French economy's lower productivity compared to other countries is further depressing economic growth.

How is industrial development? The situation in French industry is exacerbating the already tense economic situation. More than 66,000 companies went bankrupt in 2024, putting around 260,000 jobs at risk. From automotive suppliers to the construction industry to retail, numerous companies are planning downsizing. Factory closures and layoffs have been increasing nationwide since September 2024.

What are France's growth prospects? The French central bank, the Banque de France, expects only a slight increase in real economic output of 0.7 percent for 2025. Experts predict growth of just 0.2 percent in the new quarter. This weak economic development makes it even more difficult to stabilize the debt ratio.

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Why the ECB cannot be the lifeline for Paris

The hope for an ECB rescue and its risks

Why are French politicians relying on the ECB? Many French politicians, especially populists, seem to expect that the European Central Bank will grant the country any loan it needs. However, this hope for cheap EU loans is deceptive, as Friedrich Heinemann of the Central European Economic Research Institute (ZEW) warns: With France's declining credit rating, these hopes are "evaporating."

What instruments does the ECB have at its disposal? The ECB has the Transmission Protection Instrument (TPI), which allows it to purchase debt securities from countries provided the criteria for budget cuts and structural reforms are met. However, such intervention could lead to political tensions in France, as it could be viewed as an infringement on national sovereignty.

What are the risks of ECB intervention? A massive intervention by the ECB would further politicize monetary policy and jeopardize the central bank's independence. Friedrich Heinemann warns: "The ECB would slip into a role that concerns itself with the question of which political forces deserve support and which do not." This would be politically extremely sensitive and could shake the foundations of the monetary union.

The danger of a new euro crisis

Is Europe facing a new sovereign debt crisis? Many experts see alarming parallels to the euro crisis of 2010-2012. Economist Daniel Stelter warns: "The French debt crisis is serious and has the potential to trigger the next euro crisis." Unlike the Greek crisis, however, a French sovereign debt crisis could drag down all other EU countries.

How does the current situation differ from previous crises? France is the second-largest economy in the Eurozone and thus more systemically important than Greece or Portugal. With 47 percent of the Eurozone's economic power (together with Germany) and the corresponding share of guarantees in the European rescue mechanisms, a French crisis would threaten the very existence of the monetary union.

What are the contagion risks? Because government bond yields are pegged in the Eurozone, higher French interest rates would impact all other European countries. Highly indebted countries like Italy or Spain would also find it more expensive to finance additional spending. This could trigger a downward spiral.

The role of political instability

How is the political crisis affecting the economy? Political instability is significantly exacerbating economic problems. Many companies are postponing or canceling investment projects while awaiting political stability. The ongoing government crisis is making it impossible to implement necessary structural reforms.

What does the government's inability to act mean? Without an effective government, France can neither implement the necessary austerity measures nor carry out structural reforms to strengthen competitiveness. The French government's ability to respond to economic challenges is severely limited due to the strained state of public finances.

How is the population reacting? The planned austerity measures are facing massive resistance among the population. Unions have called a general strike for September 10, 2025. The protests are reminiscent of the Yellow Vest movement of 2018 and could further destabilize the country.

International comparisons and warnings

How does France compare internationally? In absolute terms, with €3.3 trillion, France is far ahead of Germany (€2.8 trillion) and the equally heavily indebted Italy (€3.1 trillion). In terms of its debt ratio, at 114 percent of GDP, France is significantly higher than Germany (around 60 percent) but lower than Italy (137 percent) and Greece (164 percent).

What do international experts say? Former EU Commissioner Pierre Moscovici warns of a "fiscal abyss," emphasizing: "We can still act voluntarily, but tomorrow the markets could impose austerity on us." The warning is clear: If France doesn't act voluntarily, the financial markets will force the country to take even tougher measures.

Is IMF intervention imminent? Finance Minister Éric Lombard even warned of possible intervention by the International Monetary Fund. ECB President Christine Lagarde contradicted this assessment but emphasized that France must "get its public finances in order."

The impact on German public finances

How could the French crisis affect German debt? Germany itself is planning massive new debt through a €500 billion special fund for infrastructure and increased defense spending. The interest rates in the eurozone, which have risen due to the French crisis, are also making German borrowing significantly more expensive.

What specific additional costs will Germany incur? Estimates suggest that the debt plans of the CDU/CSU and SPD could lead to €1.5 billion in higher interest payments as early as 2025. The 20 basis point increase in the yield on ten-year German government bonds immediately after the German fiscal plans were announced demonstrates how closely intertwined European markets are.

How are the German financial markets reacting? Arthur Brunner of ICF Bank warns: "Germany is accumulating a huge mountain of debt, and this debt must be paid." Rising European government bond yields are also being driven by "concerns about rising government debt for defense."

Long-term scenarios and risks

What happens if France fails to stabilize its debt? Persistently high deficits and weak growth threaten a debt sustainability crisis. Rising debt, weak growth, and higher interest rates could then cause investors to doubt the country's ability to continue servicing its debt.

What scenarios are conceivable? In the worst case, France could fall into a downward spiral similar to Italy's in recent years. This would mean ever-increasing interest rates, ever-increasing budget deficits, and ultimately the loss of financing capacity on the capital market.

What does this mean for European integration? A French sovereign debt crisis would shake the entire European architecture. The reformed EU debt rules would be put to the test, the role of the ECB would be fundamentally questioned, and confidence in European integration could be permanently damaged.

Possible solutions and their limitations

What reform options does France have? Structural reforms to increase productivity, a reform of the bloated public sector, and credible fiscal consolidation would be necessary. However, all of these measures have so far failed due to political resistance from a fragmented society.

Why are compromises so difficult? French politics is so polarized between left- and right-wing populists, as well as the weakened center, that viable majorities for unpopular but necessary reforms are elusive. Even moderate proposals like raising the retirement age from 60 to 64 have proven impossible.

What European solutions are conceivable? The EU could relax its debt rules, the ECB could expand its support, or new European debt instruments could be created. However, all these measures would only buy time without solving the structural problems.

The warning for Germany and Europe

What can Germany learn from the French crisis? Economist Daniel Stelter warns urgently: "France should be a warning signal for us." Germany, too, is "accruing new debt in large steps without proper reforms." In five to ten years, Germany could find itself in the same situation as France today.

What preventive measures would be necessary? Germany would have to rethink its own debt policy, push forward structural reforms, and prevent political polarization from making sensible fiscal policy impossible. The debt brake and fiscal discipline take on new importance in this context.

What is ultimately at stake? It concerns nothing less than the stability of the monetary union, the credibility of European integration, and the economic future of over 300 million Europeans. The French debt crisis is a test of the resilience of the European project—a test that Europe must pass if it wants to survive as a unified economic and monetary union.

The answers to these questions demonstrate the dramatic scope of the French debt crisis. It not only threatens France itself, but could also plunge Germany and the entire EU into a deep crisis through contagion effects, higher interest rates, and the destabilization of the European financial architecture. Time for solutions is running out, while political inaction in Paris persists and financial markets become increasingly nervous.