French Debt: The Wall Has Broken After the Prime Minister’s Resignation

France has entered an unprecedented zone of turbulence. What is unfolding before our eyes goes beyond the mechanics of financial markets: it is the economic credibility of an entire nation that is wavering. Since the resignation of the Prime Minister, long-term borrowing rates have soared, revealing a brutal truth: French debt is no longer perceived as a safe haven.
We are facing, without exaggeration, the most significant public financial risk ever experienced under the Fifth Republic.

A Political Shock, an Economic Wave

Markets have no memory, but they do have reflexes.
When political uncertainty sets in, investors sell. They neither wait nor analyze—they react.
Since the resignation of the head of government, this is exactly what has happened. Within hours, ten-year bond yields have surged, widening the alarming gap with Germany’s.
This Franco-German “spread,” long contained by France’s budgetary credibility, has now reached levels reminiscent of the darkest days of the European debt crisis.

This surge is no anomaly. It reflects a structural loss of confidence.
When a core country like France sees its rates match or exceed Italy’s, the entire financial hierarchy of the eurozone is thrown off balance.

The Price of Instability

Every basis point added to borrowing costs translates into billions of euros in extra public spending.
France, already on a debt trajectory exceeding 110% of GDP, can no longer afford political volatility.
Rating agencies are watching—silent but alert. Institutional investors, notably foreign pension funds, are beginning to reduce their exposure to French debt, now seen as less reliable and more unpredictable.

The mechanism is relentless: as confidence erodes, debt costs rise, and budgets weaken.
It becomes a self-perpetuating spiral where political instability turns into a fiscal liability.

The State, which borrows billions each week to function, now finds itself at the mercy of the markets.
In other words: it is no longer France that sets its rates, but the markets that set their confidence level in France.

The Return of Sovereign Risk

For years, Europe lived under the illusion of stability.
The European Central Bank, through massive bond purchases, kept state financing costs artificially low.
That era is over. Inflation, geopolitical tensions, and monetary tightening have closed that chapter.
Now, each state is judged on its budget discipline, administrative efficiency, and political stability.

And on these three fronts, France worries investors.
Structural reforms remain incomplete, public spending continues to rise, and the absence of a clear majority in Parliament feeds the perception of paralysis.
In this context, France’s sovereign risk is no longer theoretical—it is tangible, measurable, and priced to the decimal.

A Shaken European Confidence

The ripple effect extends beyond France’s borders.
Investors no longer separate France’s fate from that of the eurozone.
When the Union’s second economic pillar falters, the credibility of the entire European edifice trembles.
Berlin is concerned, Rome relieved, and Brussels attempts to reassure without convincing.
Behind the numbers lies a simple truth: Europe cannot stand without France’s financial solidity.

This situation places the European Central Bank in a dilemma—intervene to contain contagion, at the risk of appearing to rescue a failing state, or do nothing and risk triggering a continental debt crisis.

Recent history teaches us that the ECB always acts too late, never too soon.
This time, the cost of delay could be enormous.

The Real Economy Put to the Test

This crisis is not just about bond yields—it is slowly seeping into the real economy.
Companies, faced with higher credit costs, are postponing investments.
Households, unsettled by political uncertainty, are cutting consumption.
Local governments, already under strain, fear tighter borrowing conditions.
Uncertainty becomes an invisible tax: it slows decisions, erodes confidence, and stifles momentum.

In this climate, French growth risks becoming the first collateral victim of a crisis born at the top of the state.
And as always, it will be local businesses, SMEs, and regional actors who bear the brunt—long before macroeconomic indicators reflect the damage.

Escaping the Trap: Restoring Credibility

The diagnosis is harsh, but the way out is not beyond reach.
France must rediscover the art of responsible economic management, built on three pillars:

Budget clarity – speaking truthfully about deficits and spending, without disguising figures.
Institutional stability – ensuring investors that political decisions remain predictable and coherent.
Long-term discipline – returning to a credible path of debt reduction, gradual but clear.

Without these foundations, no promise will restore confidence.
France must accept that the “whatever it takes” era is over.
Public money is no longer a political tool—it is a scarce resource that must be managed with rigor and lucidity.

A Collective Choice: State or Distrust

Debt is not just about numbers—it is about a social contract.
As long as citizens believe the state manages funds with prudence and fairness, they accept to finance it, directly or indirectly.
But when trust erodes—when citizens perceive waste, injustice, or improvisation—the entire fiscal and financial system weakens.

This is the real danger: a generalized breakdown of trust between government, markets, and society.
The threat is not only rising interest rates but a lasting doubt about the state’s ability to keep its word.

The Courage of Truth

This is no time for comforting words—it is a time for lucidity.
France still has major strengths: savings, demographics, industry, geography, and its role within Europe.
But these strengths will not suffice without a renewal of the bond between politics and economic responsibility.

©2025 – EUROPEAN IMPACT

About The Author

Jean-Luc GINDER Economiste

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