France's interest payments now exceed its defence budget. Here's why.
At the end of 2025, France's public debt reached €3,460 billion — 115.6% of GDP. By the third quarter of the year, the ratio briefly hit 117.4%, the highest level ever recorded outside a major crisis. Interest payments are forecast at €74 billion for 2026, more than the budgets of defence or higher education. A close look at a quiet runaway.
In 1995, France's public debt stood below 60% of GDP. Thirty years later, it is close to twice that figure. And the trajectory is accelerating.
According to data published by INSEE, France's national statistics agency, in late March 2026, the public debt under the Maastricht definition reached €3,460.5 billion at end-2025, or 115.6% of GDP — up from 112.6% at end-2024 and 109.5% at end-2023. In a single year, the debt grew by €154.4 billion.
The peak in the third quarter of 2025 even reached 117.4% of GDP — a level never seen outside the Covid-19 pandemic.
But the most striking figure is not the stock of debt itself. It is what it costs. For the first time in modern French budget history, interest payments have become the state's single largest expenditure line, ahead of defence. €74 billion is forecast for 2026 — more than the armed forces, higher education, or the justice system.
It is the mechanical result of a debt that has kept growing in a world where money is no longer free.
Debt or deficit: what are we talking about?
The two concepts are often confused. They are not the same.
The public deficit is an annual flow: the gap between revenues (taxes, social contributions) and spending across all public administrations over one year. In 2025, it amounted to €152.5 billion, or 5.1% of GDP according to INSEE — well above the 3% threshold set by the EU's Maastricht rules.
Public debt is a stock: the cumulative total of all past deficits not yet repaid. When the state spends more than it collects, it borrows. Debt is the sum of those borrowings.
"The budget deficit is an economic measure observed over a given period. Debt is a stock — an economic measure observed at a given moment." — INSEE
The standard measurement unit is the debt-to-GDP ratio. It allows comparison across countries and over time, and serves as a proxy for sustainability: €3 trillion of debt does not weigh the same in a €2 trillion economy as in a €5 trillion one.
For reference, the Maastricht Treaty (1992) set two theoretical thresholds for eurozone members: an annual deficit below 3% of GDP, and a debt below 60% of GDP. France has met both criteria simultaneously only on rare occasions since 1995.
The runaway: three shocks, one trajectory
The increase has been near-continuous since the mid-1990s. Three major inflection points stand out.
2008–2012. The subprime crisis cut tax revenues and triggered massive stimulus packages. Debt rose from 64% to 90% of GDP in five years. No reduction followed, despite multiple multi-year fiscal programming laws.
2020. The Covid-19 pandemic blew up the deficit through President Emmanuel Macron's "whatever it takes" response. Debt gained 15 percentage points of GDP in a single year, approaching 115%. Other European countries saw similar jumps — but most then began tightening their budgets.
2022 onwards. The end of the zero-rate era changed everything. When the European Central Bank raised its policy rates to fight post-Covid inflation, the cost of French debt began climbing. Having failed to reduce its debt during the cheap-money years, France took the rate rise head-on.
"For half a century now, France has been living beyond its means. The state, local authorities and the social security system have all spent more than they have collected, fuelling steadily rising debt. The Covid-19 pandemic accelerated this trend — but most European countries then engaged in fiscal tightening. France did not." — Public Sénat, December 2025
The interest bill: the state's biggest budget line
The figure is unprecedented in modern French budget history.
In 2024: €58 billion in interest payments. In 2025: €67 billion. In 2026: €74 billion forecast.
That is +€16 billion in two years — roughly equal to the entire annual budget of the Ministry of Justice, or more than twice the budget for research.
The mechanics are unforgiving. €174 billion in bonds mature in 2026, including more than €100 billion between February and May. With only two exceptions, those bonds carried very low coupons inherited from the zero-rate era: 0%, 0.1%, 0.5%, 0.25%.
The average yield on those maturing bonds? 1.2%.
But the AFT must replace them with new borrowings at far higher rates. Average medium- and long-term borrowing rose from 2.91% in 2024 to 3.14% in 2025, and the 10-year benchmark rate climbed from 2.94% to 3.37%. In concrete terms, every refinanced bond now costs two to three times more in interest than before.
According to think tank IFRAP, this rollover effect alone represents an additional cost of around €4 billion for 2026 — and it will keep compounding for years as the old near-zero bonds disappear from the portfolio.
2026: a record year for issuance
| Year | Total issuance | Medium/long-term OATs | Short-term BTFs | Net issuance |
|---|---|---|---|---|
| 2024 | ~€430bn | ~€285bn | ~€145bn | €285bn |
| 2025 | ~€497bn | ~€270bn + €20bn indexed | ~€207bn | €300bn |
| 2026 | >€530bn | ~€290bn + €20bn indexed | ~€220bn | €310bn |
The AFT must raise more than €530 billion in 2026, including €310 billion in net issuance (after repayments of maturing debt). That is more than in 2020, the Covid year — when issuance had already reached an exceptional level to fund the "whatever it takes" response.
For the first time, France has scheduled a record issuance programme outside a major crisis.
Market conditions are starting to tighten. IFRAP notes a steady decline in bid-to-cover ratios at French bond auctions over the past six months, both for short- and long-term debt. The bid-to-cover ratio — the volume bid by investors relative to the volume actually issued — fell to 2.2 in January 2026, down from 2.6 in late 2025. The lower the ratio, the worse the pricing France must accept to place its bonds.
The yield gap between French OATs and Italian BTPs at 10 years even partially inverted in late 2025 — an unprecedented event in the eurozone. France, long viewed as a premium issuer, now pays a risk premium comparable to Italy's.
Who lends to France?
French public debt is held to a much greater extent by foreign investors than in neighbouring countries.
| Country | Debt / GDP (end-2025) | Held by non-residents |
|---|---|---|
| France | 115.6% | 55% |
| Germany | 62.5% | ~40% |
| Italy | 135.3% | ~30% |
| United Kingdom | ~100% | ~28% |
| Greece | 153.6% | n.a. |
This international footprint cuts both ways. On the one hand, it reflects the depth and attractiveness of the French bond market: French securities are liquid, easy to trade, and sought after by pension funds and central banks worldwide. On the other, it leaves the country more exposed to a sudden loss of confidence: foreign investors can sell quickly.
The remainder of the debt is held by:
- The Banque de France (acting for the ECB), which has accumulated around €630bn of OATs through the asset purchase programmes (PSPP, PEPP). It alone represented close to 20% of Maastricht-defined debt at end-2024.
- French life-insurance companies (~9%).
- Resident banks (~9%).
- Other holders (funds, individuals, etc.).
Worth noting: since 2022, the ECB no longer reinvests maturing bonds. That means each maturity removes securities from the Banque de France's portfolio — bonds that must then be absorbed by other buyers in the market. It is one of the factors pushing yields higher.
How the state actually borrows
The mechanism is well known to financial markets but rarely seen by the wider public. The Agence France Trésor (AFT), attached to the French Ministry of Finance, runs regular auctions in which around thirty banks and financial institutions — known as Treasury primary dealers (SVT) — participate.
Three main instruments structure the debt:
BTFs (Bons du Trésor à taux fixe): short-term fixed-rate bills, from 3 to 12 months. Issued every week. They manage the state's cash position.
OATs (Obligations Assimilables du Trésor): medium- to long-term bonds, from 2 to 50 years, with annual coupons and a fixed maturity. The flagship instrument: roughly 80% of central government debt.
Indexed OATs (OATi and OAT€i): bonds whose coupons are indexed on French or eurozone inflation. Smaller in volume, but growing.
Auctions for medium-term OATs take place on the third Thursday of each month; long-term OATs on the first Thursday. At each auction, investors bid at different prices. The AFT accepts the best bids until the target volume is reached. The clearing rate is set by the market, not by the state.
Month after month, that is how France's borrowing cost is determined.
Why the ratio became the only metric that matters
INSEE and the Banque de France assess debt sustainability through the trajectory of the debt-to-GDP ratio over time.
The rule is mathematically simple:
- If nominal GDP growth outpaces the average interest rate on the debt, the ratio can decline even with a deficit. That was the case throughout the 2010s, thanks to modest growth combined with near-zero rates.
- If, on the other hand, interest rates persistently exceed growth, debt runs away. To stabilise the ratio, the country must either run a primary surplus (revenues > spending excluding interest) or accept a rising trajectory.
That is precisely the current situation. France borrows at an average 3.14% (2025), but expected nominal growth for 2026 sits between 2% and 2.5%. Without budget rebalancing, debt will keep growing faster than the economy.
Hence a question increasingly raised by economists: at what level would the ratio cease to be tolerable? No scientific consensus exists. But rating agencies are watching. Fitch has placed France at "A+" with a negative outlook; Moody's maintains "Aa3" with a negative outlook. A downgrade would mechanically push up borrowing rates — and the cost of debt with them.
What options to fix it?
Three main paths, each with its political trade-offs.
1. Austerity. Reduce the deficit through spending cuts or tax hikes to put debt on a downward path. The classic route, followed by Germany, Portugal and Spain after 2012. Heavy social and political cost: wage compression, weaker demand, unpopularity.
2. Betting on growth. Stimulate the economy through investment or structural reforms, in the hope that the denominator of the ratio (GDP) grows faster than the numerator (debt). Officially, this has been France's strategy since 2017. The challenge: room to manoeuvre shrinks as rates rise.
3. Fiscal compromise. Strike a balance between expenditure control and the protection of strategic investments (climate transition, defence, healthcare). The path successive governments have sought — but the failure of the joint committee on the 2026 budget illustrates how politically difficult the exercise has become.
Four options, by contrast, are off the table, either because they are forbidden under EU treaties or considered impractical:
- Direct monetisation by the ECB is prohibited by European treaties.
- Debt restructuring (a "haircut") has only been used in the eurozone for Greece (2012), at the cost of a major social shock. Inconceivable for France.
- High inflation as a tool to erode the real value of debt is theoretically possible, but its social cost is unacceptable and it cannot be reliably steered.
- A return to a national printing press would require leaving the euro.
Political backdrop: a 2026 budget in the dark
On 19 December 2025, the joint committee (CMP) on the 2026 finance bill failed. Members of the National Assembly and the Senate could not agree. With no budget adopted before 31 December, the government had to fall back on a "special law" to ensure the continuity of the state — primarily, the collection of taxes.
According to the French Observatory of Economic Conditions (OFCE), applying that special law for the entire year 2026 would mean:
- a loss of €6.5 billion in revenue for the state;
- a reduction in spending of just €3 billion.
That is a net shortfall of €3.5 billion for public finances. The Governor of the Banque de France, François Villeroy de Galhau, publicly warned against a deficit "significantly higher than what would be desirable" under that scenario.
The original bill envisaged a marginal deficit reduction, from 5.4% of GDP in 2025 to 5.3% in 2026 — already short of the Prime Minister's stated goal of staying below 5%. Under the special law, even that trajectory becomes uncertain.
The Franco-German gap is widening
| Indicator | France | Germany | Italy |
|---|---|---|---|
| Debt / GDP (end-2025) | 115.6% | 62.5% | 135.3% |
| Public deficit 2025 | 5.1% | ~2% | ~4.4% |
| 10-year yield (March 2026) | ~3.4% | ~3.1% | ~4.0% |
| Held by non-residents | 55% | ~40% | ~30% |
| Interest cost (% of GDP) | ~2.2% | ~1% | ~3.8% |
Germany committed to fiscal discipline as early as 2010 with the Schuldenbremse, or "debt brake", written into its constitution. The result: a debt-to-GDP ratio roughly half of France's, more favourable borrowing rates, and far greater capacity to absorb external shocks.
Italy, paradoxically, is now seen by some investors as a more predictable issuer than France. The Meloni government has stuck to a degree of budget orthodoxy, which has stabilised the spread between Italian bonds and German bunds — even as the spread between French bonds and German ones has been widening.
That is one of the most worrying signals for the French sovereign.
Why this matters for everyone
Beyond the figures, the debt has a tangible impact on everyday life in France.
On the state budget. Every euro spent on interest is a euro not spent on education, healthcare, the climate transition or defence. The interest bill already accounts for 5.35% of total tax receipts. Without it, €74 billion could in theory be returned as tax cuts or reinvested elsewhere.
On flexibility. In the event of another major economic shock — war, pandemic, severe climate event — France has less room than its neighbours to mobilise emergency resources. Heavy debt undermines national resilience.
On sovereignty. With 55% of the debt held by foreign investors, France partly depends on the perceptions of international markets to fund its current spending. A loss of confidence — economic or political — can sharply increase borrowing costs.
On future generations. Debt is not repaid each year: it is rolled over, refinanced through new bonds. But the interest is paid. And every cohort of children entering the labour market inherits a higher interest bill than the cohort before. According to the public debt clock, each French resident now owes €2.95 a day in interest payments alone — including newborns. Per-capita debt rises by €7.31 every day.
What the French think
According to the Elabe poll of October 2024, 82% of French people consider it urgent to reduce public debt. But opinion fragments as soon as the conversation turns to means: only 31% would accept cuts to social spending, and 24% a tax increase.
That is exactly the political paradox of the debt: broad consensus on the diagnosis, deep disagreement on the cure. No government, since 1981, has durably reversed the trajectory — regardless of political colour.
What next?
Three plausible trajectories to 2030.
Scenario 1: slow stabilisation. The debt-to-GDP ratio stabilises around 115–118% thanks to a modest but sustained budget effort. The interest bill plateaus at €80–85 billion. Requires alignment between nominal growth, the average interest rate, and political stability.
Scenario 2: managed drift. The ratio keeps rising to 120–125% by 2030. The interest bill reaches €90–100 billion a year. Rating agencies downgrade France by one notch, but no systemic crisis. The intermediate scenario — and the one feared by the Cour des comptes (France's national audit office).
Scenario 3: a confidence crisis. A political or economic shock triggers a sell-off of French debt by foreign investors. Yields spike. Borrowing costs double in months. France is forced into emergency fiscal consolidation, Greek-style. An extreme scenario — but the trigger cannot be known in advance.
At this stage, scenario 2 is judged most likely by economists at the main institutions. But it is not written. It depends on the political choices of the next eighteen months.
The real question
In the end, public debt is not just a technical subject. It is a balance of power between generations.
A growing share of the state budget is now devoted to servicing interest on borrowings contracted in the past — to pay for spending that benefited others. The trajectory is mathematical: the bigger the debt, the heavier the interest, the smaller the room to invest in the future. The exact opposite of the logic of public investment.
French political debate likes to oppose austerity and stimulus, right and left, rigour and generosity. The reality is simpler, and harsher. As long as interest rates remain higher than nominal growth, France must run a primary surplus — that is, collect more in revenue than it spends excluding interest.
It has not done so for more than twenty years.
Main sources
- INSEE — In 2025, the public deficit stands at 5.1% of GDP, public debt at 115.6%
- INSEE — At end-Q3 2025, the public debt ratio reaches 117.4% of GDP
- Public Sénat — Public debt: France crosses a new threshold at 117.4% of GDP
- IFRAP — 2026: a record year for French debt issuance
- economie.gouv.fr — Five minutes to understand French public debt
- French public debt clock
- Club Patrimoine — France to borrow €310 billion in 2026, a record
- Additional data: Agence France Trésor, Cour des comptes, Elabe poll (October 2024).
This article is part of a Kero series on the major balances of the French economy out to 2030. If you are an economist, a Bercy civil servant, an elected official or a citizen with insight on this matter and would like to share an analysis or a viewpoint with us, write to hello@kero.media.
