Beirut’s government is “on the brink”—who can clean up the mess of France’s debts?

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France is sliding into a political crisis. Prime Minister Bayrou’s government is on the verge of collapse, but this may be just the prelude to a bigger storm. Whoever succeeds Bayrou will inherit a thorny mess: a debt path that economists describe as “precarious.”

The immediate focus is the parliamentary vote of confidence scheduled for September 8. Due to plans to implement an unpopular austerity budget, Bayrou’s government is very likely to lose the vote. Currently, several of the most powerful parties in the French parliament have vowed to topple his government, unless the far right or a majority of left-wing groups unexpectedly abstain.

This political turmoil is intensifying scrutiny of France as a highly indebted developed economy. According to media reports citing informed sources, President Macron hopes to avoid an early election resulting from the government’s downfall, and prefers to seek an agreement among parties in the National Assembly in order to appoint a new prime minister.

Analysts warn that although for now this is mainly a “political crisis,” if a strong fiscal consolidation plan cannot be introduced, it could easily evolve into an economic or debt crisis. This assessment sets the tone for France’s bleak fiscal outlook: the political deadlock is pushing the economy to the edge of danger.

“Precarious” Debt Path

Market concerns have already become apparent. France’s long-term government bonds are under selling pressure, pushing yields higher. As noted in a previous article, some investors who are not legally required to hold French government bonds are now selling assets and turning instead to gold, cash, and especially safe-haven assets such as the dollar or Swiss franc. Germany will not be immune either; the country, once praised for its conservative fiscal policy, has opened the door to severe market turmoil with its trillion-euro debt plan.

According to a report released by the media on Friday, if politicians fail to agree on debt control measures, France’s public debt-to-GDP ratio is expected to rise by another 10 percentage points by 2030, reaching 125%.

Economists Jean Dalbard, Antonio Barroso, and Simona Delle Chiaie wrote in a recent report:

“If an ambitious fiscal consolidation plan cannot be introduced, nominal growth will not be enough to offset rising financing costs, and debt will embark on a precarious upward trajectory, increasing the risk to debt sustainability.”

At present, the French economy is already “lacking growth momentum.” The report further notes that domestic demand is being suppressed by high political uncertainty. Any further tightening of financing conditions will add risks to the expected economic recovery in 2026.

Despite the concerning debt outlook, analysts emphasize that France is currently facing, first and foremost, a political crisis. Economist Dalbard stated:

“In the future it may evolve into a debt or economic crisis, but for now it is just a political crisis.”

This view suggests that immediate economic consequences remain under control. However, this does not eliminate long-term market concerns over France’s fiscal situation, and investor scrutiny will only intensify as the political deadlock continues. The fate of Bayrou’s government, and whether his successor can build consensus and carry out reforms, will be key in determining the trajectory of the crisis.

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