The French Debt Dilemma

Written by Alice Even

Illustrated by Keo Morakod Ung

Since the oil crisis, for over 50 years, France has been running fiscal deficits every year. The government has been spending more than they earn and they have had to borrow to fund their expenditure. This racking up of debt, and the accumulation of the debt servicing cost to the 3rd highest expense at €67 billion, has been of concern to many, in and outside the country. 

For reference, the European Union was established with the Maastricht Treaty in 1992, which stated that countries should not have a fiscal deficit of over 3% of their GDP or a public debt of over 60% of their GDP. Countries had to meet these criteria to use the euro. In France, the deficit has often exceeded 3% of their GDP. Since 2002, it has done so in all but 4 years (2006-2007, 2018-2019). Government debt reached the 60% limit in 2002, and remained above it, rising to the equivalent of 113.15% of the French GDP. The EU acted by setting recommendations for how much France should reign in their spending so France could “put an end to the excessive deficit situation by 2029”.

The Cour des Comptes (France’s supreme audit institution) published in July of 2025 a report stressing the importance of decreasing the deficit. They argued that the government predicted overly optimistic growth compared with other institutions. This report emphasizes that the fiscal deficit must be viewed through the lens of uncertain growth. In 2024, the reason for the widening deficit wasn’t the debt servicing cost, or any extraordinary scenarios. It was instead due to an increase in the core spending by the government. The report paints a picture of an undisciplined budget that worsens the outlook for future generations, such as how much it will need to pay by 2029 to adjust the deficit/GDP ratio back down to 3%. Before the 2023 and 2024 deficits, it would have cost €50 billion by 2029. Now, the Cour des Comptes say it has more than doubled to €105 billion.

The government has two options, increase revenue or decrease spending. The Cour des Comptes report mentioned previously implies that the deficit spending in social security is especially unreasonable as the French economy is not in a recession, or on the bottom of a cycle, like it was in 2020. It follows then that welfare spending should be reduced.

On this line of thought, some believe that the pension age should increase. In fact, the pension reform that increased the retirement age from 62 to 64 was suspended until the presidential elections in 2027. Given that the average income for those over 65 was 1% higher than workers, it is clear why some think the state should cut back on their spending on retired workers. (As a side note, this stat is slightly distorted, probably due to income inequality. You can see here how the mean income is more unequal between the age groups than the median income.) After all, France operates on a pay-as-you-go system. Those working now are not paying for their own retirement but are instead paying for those currently retired. The demographic crisis hitting much of the world is also hitting France. You can see the issue when looking at this interactive age pyramid. The system was made for a growing economy, where people have multiple kids and the next, larger, generation can pay for the current one in the future. However, this is not the case anymore, with a fertility rate below replacement and a longer life expectancy combining to decrease the ratio between those working and those retired, people could start to wonder why they are paying into a system that may not be able to pay them back when they retire, as there might not be enough workers. 

This publication by the Cour des Comptes says that raising the retirement age from 64 (this was published before the recent suspension of the reform) to 65 would bring in €8.4 billion, while decreasing it from 64 to 63 would cost €5.8 billion. The pension deficit is expected to be €6.6 billion this year. The same report points out that due to a rise in life expectancy, the amount of time people can retire will equalize despite a reform increasing the retirement age, and their standards of living and pensions will both increase. Some argue that borrowing for pensions means placing the burden on younger generations to pay for the current retirees. However, more elderly people are falling into poverty. This system is also hard to change structurally. While there are many advantages to hybridising the sources of the pensions, with more money coming from savings and being invested, people who are already paying into the pay-as-you-go system would be reasonably upset to also have to fund their future pensions more than previously assumed. 

The transformation of the age pyramid brings up another economic question, namely what will happen in the transfer of wealth following the passing of baby boomers. There was a proposal by left-wing politicians of a ‘Zucman tax’, a minimum 2% tax on wealth above €100 million, and another proposal for a minimum 3% levy on assets above 10 million euros. However, neither of those passed. Another source of revenue for the government based on wealth, instead of income, could be inheritance. However, despite there being an allowance for inheritance that remains untaxed that only 13% of parent-child inheritances cross, 66% of French people believe that the inheritance tax is too high. For further observations on wealth taxes, feel free to check out Manav Khindri’s post.

Overall, if the government cannot spend more, or find new ways of taxation that people and corporations accept, the remaining solution is well-distributed economic growth. Their tax revenue would increase as people get paid more, and as companies grow, while their spending would decrease as fewer people find themselves in precarious situations. It is very clear that the next presidential election in 2027 will be crucial in determining the future of the economy, as the electorate will have to decide which 5-year economic framework they choose to adopt, primarily how to balance their current welfare model and standard of living (as they couldn’t stop spending on welfare, this would even lead to a decrease in GDP as less people can spend) with investing (with limited funds) in growth for future generations. With clear implications for the entire eurozone, this will be fascinating for economists to follow within and beyond France.