France on the Brink of Financial Collapse

France is going through a pivotal period. On one hand, public debt is reaching historic heights, surpassing 3 trillion euros. On the other, a profound transformation of institutions is disrupting the traditional balance of the Fifth Republic.

The extent of the financial disaster in France

The state of French public finances has become catastrophic, as recently acknowledged by Bruno Le Maire and Emmanuel Macron. The figures are staggering: in the third quarter of 2023, public debt reached 3088.25 billion euros, or 111.7% of GDP. This performance places France among the top three most indebted countries in the European Union, behind Greece (165.5%) and Italy (140.6%).

Even more concerning, France has become the largest contributor to the debt of the eurozone, accounting for 24.3% of total debt, ahead of Italy (22.4%) and Germany (20.7%). This position marks a spectacular degradation compared to the year 2000, when France represented only 17.5% of the eurozone debt.

A 2025 budget that worsens the situation in France

In this alarming context, the 2025 budget led by François Bayrou seems to exacerbate imbalances. Public spending continues its inexorable rise, increasing by 1.1% in volume, faster than the projected growth of 0.9%.

The deficit projected at 5.4% of GDP could widen further if growth does not materialize.

The adopted tax measures raise concerns:

• Increase in the tax rate for large companies from 25% to 40%
• Increase from 25% to 33% for other companies
• Controversial lowering of the VAT threshold for self-employed workers, ultimately suspended

The ticking time bomb of debt burden

The financial consequences are projected to be dramatic. According to the public finance programming law, the interest burden of the debt will follow a staggering trajectory:

• 49 billion euros in 2024
• 57 billion in 2025
• 65.1 billion in 2026
• 74.4 billion in 2027

In total, France will need to spend 295 billion euros over five years just to cover the interest on its debt. This projection, already alarming, is based on optimistic assumptions about growth (1.4%) and stability of interest rates.

France: an exception in the European landscape

The comparison with our European partners is unequivocal. Of the 27 countries in the European Union, 16 have a debt-to-GDP ratio below 65%. Some striking examples include:

• Germany: 64.8%
• Netherlands: 45.9%
• Czech Republic: 44.5%
• Ireland: 43.6%
• Estonia: 18.2%

This situation demonstrates that debt explosion is not a foregone conclusion, even in the face of recent crises (Covid-19, war in Ukraine, inflation). France stands out as an exception due to its inability to control its public finances.

The transformation of the political regime in France

Alongside this crisis, we are witnessing a profound mutation of institutions. The dissolution of 2024, decided by Emmanuel Macron in the face of probable censure in the autumn, has paradoxically accelerated the weakening of presidential power.

Parliament has spectacularly regained power:

• The appointment of François Bayrou as Prime Minister in December 2024 marks a historical break
• The president had to accept a head of government he did not choose
• The presidential role is now limited to more ceremonial functions

Power has shifted from the Élysée to the Assembly

A political system in full mutation has emerged since the historic motion of censure in December 2024. The Socialist Party has established itself as the arbiter of parliamentary balances, demonstrating that it holds the true keys to power. Its decision not to censure the Bayrou budget, despite strong reluctance, illustrates this new responsibility.

Moreover, the National Rally has modified its strategy, conditioning its vote on that of the socialists. This evolution marks a break from the tradition of systematic opposition and reveals a new sophistication in parliamentary maneuvering.

Immediate threats

Several critical deadlines are looming:

• Review of the French rating by Moody’s and Fitch on April 26, 2024
• Evaluation by Standard & Poor’s on May 31, 2024
• Possible entry into recession in the first quarter of 2025
• Need for a revised finance law in the summer of 2025

A downgrade of the French rating would lead to an increase in interest rates, further aggravating the financial situation and potentially triggering a vicious cycle: rising rates, economic slowdown, increasing unemployment, and widening deficits.

The complicated international context

The French transformation can only be understood in light of a broader global upheaval. The German elections on February 23, 2025 constitute a turning point for Europe. The possible rapprochement between CDU-CSU and the AfD marks a break from the traditional quarantine and could redefine the political balances of the continent.

This evolution in Germany resonates with transformations observed in other European countries, where traditional political divides are fading in favor of new configurations.

Geopolitical tensions are escalating globally. The conflict in Ukraine continues to shake European security.

The Western economic model is undergoing an unprecedented legitimacy crisis. The experience of Javier Milei in Argentina fascinates more and more observers and decision-makers. The speed of results achieved by his shock liberal policy is upending certainties.

This questioning of the European social-democratic consensus finds a particular echo in France, where the social model is showing its limits.

France still has assets in AI and energy

Despite this worrying situation, France has major advantages to succeed in its transformation. Its technological excellence is evident in several sectors. The recent development of Mistral, its national chatbot, illustrates the country’s ability to compete with global giants in artificial intelligence. France remains one of the few countries, alongside China and the United States, in the race for AI.

Moreover, French infrastructure provides a considerable competitive advantage. The transport network, the largely decarbonized electrical system thanks to nuclear power, and advanced digital infrastructures form a solid foundation for economic development.

French human capital is distinguished by its high level of qualification. The educational system continues to produce globally recognized talents, particularly in mathematics, engineering, and new technologies. This excellence translates into remarkable innovation capacity, as evidenced by the successes of French Tech.

France seems to have entered a phase of transformation, comparable to the great historical shifts that marked the advent of the Third or Fifth Republic. The current financial crisis could therefore accelerate this transformation and lead to the emergence of a new political model centered on Parliament instead of the presidency.