- France is set to raise 300 billion euros in debt in 2025, a historic level, putting immense pressure on its financing strategy amid political uncertainty.
- Rising interest rates and investor skepticism could lead to higher costs for public financing, threatening the country’s economic stability.
The French government is entering 2025 with a significant financial challenge ahead. Faced with a need to raise 300 billion euros, the highest debt issuance in French history, Bercy is navigating a turbulent environment filled with both economic and political risks.
The situation is made even more precarious by the lack of a final approved budget for 2025, following the collapse of the Barnier government. This political instability is feeding investor uncertainty and could lead to higher borrowing costs for the state.
As France Trésor (AFT), the agency responsible for the country’s debt management, works to ensure the necessary funding, its approach will be closely scrutinized by the financial markets.
AFT’s strategy for 2025, as it begins with its Treasury Bill (BTF) auction on January 6, is based on three key principles: predictability, regularity, and flexibility. This approach involves weekly adjustments to meet market demand and ensure liquidity.
However, the scale of the financial requirements for 2025—300 billion euros—surpasses even Italy’s debt issuance, a country often seen as one of the most heavily indebted in the Eurozone.
This sharp rise from the previous year’s 285 billion euros reflects the growing strain on the French state, which is trying to control its deficit while coping with mounting public expenditure.
The political crisis that began with the downfall of the Barnier government adds to the complexities, as it has left the country without an approved budget. To address the immediate financing needs, the government has passed a special emergency law to ensure continuity in debt issuance.
However, the temporary nature of this measure has done little to reassure investors who remain concerned about the long-term stability of France’s public finances.
The political instability has led to an uptick in France’s borrowing costs, with the spread between French and German bonds widening to over 80 basis points, a clear signal that the markets perceive French debt as riskier than before.
Despite this, AFT remains committed to its established strategy. Antoine Deruennes, the agency’s director, reassures investors by emphasizing that the same principles that have successfully guided France’s debt management in previous years will continue to be in place.
These include regular Treasury Bill (BTF) auctions every week and Assimilable Treasury Bonds (OAT) issued every two weeks. Such predictability is designed to maintain investor confidence by providing clarity on the government’s debt issuance schedule.
However, warning signs are emerging. Foreign investors, especially those from Asia, have begun reducing their exposure to French debt, a shift that could put further pressure on borrowing costs.
While some experts downplay the risk of an immediate crisis, warning that panic scenarios remain unlikely, the trend points to higher financing costs for the country. If this trend continues, it could lead to a significant increase in the state’s debt burden, further constraining its fiscal flexibility.
Looking ahead, the outcome of ongoing budget negotiations will be crucial. The markets are awaiting concrete signals regarding the government’s ability to stabilize its finances.
The financing costs for France could rise sharply if investor confidence continues to erode, and such an outcome would have far-reaching consequences not only for the French economy but also for the stability of the broader Eurozone.