France's debt pressure is likely to worsen further before the election.

The cost of borrowing money in France is rising, and investors and economists warn that France, which is already burdened with €3.5 trillion (about S$5 trillion) in public debt, could see its debt snowball if political maneuvering intensifies before next year's presidential election and fiscal reforms continue to be hampered.

Reuters reports that the so-called "snowball effect" refers to the phenomenon where, when the average interest rate on government bonds is higher than the economic growth rate, the debt-to-economy ratio will continue to rise if the government cannot maintain a basic budget surplus in the long term.

OECD Secretary General Coleman said earlier, "If nothing is done, France's public debt could reach 203% of GDP by 2050. Therefore, strict budgetary discipline is crucial to stabilizing public debt."

Official data shows that in the first quarter of this year, France's public debt exceeded 3.5 trillion euros, accounting for 117.5% of GDP, approaching the level during the COVID-19 crisis. The French Court of Auditors pointed out that France is the only country in the Eurozone that has not yet reduced its debt burden from its post-pandemic high.

France's public debt interest payments reached €66 billion last year, rapidly becoming one of the country's largest expenditures and potentially surpassing education and defense budgets. The Court of Auditors warns that this expenditure could approach €100 billion by 2029.

Moody's predicts that the debt ratios of the five largest European borrowers—the UK, France, Germany, Italy, and Spain—will deteriorate further, with France expected to see the largest increase in interest payments relative to public debt.

Since the snap parliamentary elections in 2024 resulted in a majority parliament, several minority governments have fallen while pushing through budgets, putting continued pressure on French government bonds. With the government preparing to push through the 2027 budget this autumn, the risk premium investors are demanding for French bonds over German bonds has returned to its high levels seen since the suspension of pension reforms last October, exceeding the yield spread between Italian and German bonds.

Morgan Stanley last week advised clients to reduce their exposure to French debt, citing fiscal concerns. Economists expect volatility in the French bond market to remain high ahead of next year's presidential election.

Source: [Lianhe Zaobao] (https://www.zaobao.com/news/world/story20260707-9328495)