For professional clients only. The information contained within this post is not intended for retail clients.
France’s government bonds carry an A+ rating. Are its public finances still consistent with that assessment?
Our RVM analysis gives an uncomfortable answer. At a ten-year spread of just above 140 basis points over German Bunds, France’s debt carries a market-implied rating of BBB− under our methodology — five notches below S&P’s assessment and on the final rung of investment grade.
The fiscal arithmetic helps explain why investors are demanding more compensation. The IMF’s July forecast projected government debt at 118.5 per cent of GDP in 2026, an overall deficit of 5.2 per cent and a primary deficit of 2.7 per cent. A primary deficit means spending exceeds revenue before interest payments. France is borrowing not just to service past debt, but to pay for current expenditure.
A spread also reflects supply, liquidity, and benchmark effects. It cannot establish the correct rating on its own. But investors have reason to be concerned: a large debt stock, continuing primary deficits and weak growth make stabilising the public finances increasingly difficult.
High debt need not mean poor creditworthiness. Strong nominal growth and a primary surplus can sustain a large debt stock. France, however, is adding to its obligations before paying interest, with the IMF projecting real growth of just 0.6 per cent this year. It needs to change direction, with little help from economic growth.
South Africa offers a useful comparison. Despite S&P’s below-investment-grade BB foreign-currency rating, the IMF’s February forecast projected government debt of 78.5 per cent of GDP and a primary surplus of 1.1 per cent in 2026. Its residents also own more foreign assets than foreigners own South African assets. France’s net external position was negative 29.6 per cent of GDP at end-2025. Forecast dates and conventions differ, and South Africa has serious structural weaknesses and higher interest costs. Nevertheless, developed-country status does not necessarily mean stronger finances.
France has a diversified economy, substantial taxation capacity, and established institutions. These support its creditworthiness. But the ability to raise revenue or reduce spending is different from the willingness to do so. Creditors need decisions, not simply the resources that make them possible.
Euro-area membership offers protection, but no unconditional financing guarantee. France cannot independently direct the European Central Bank to purchase its debt. The ECB’s Transmission Protection Instrument addresses unwarranted, disorderly market movements, with eligibility assessed against fiscal sustainability and other conditions. A justified increase in France’s risk premium need not bring intervention.
Higher yields gradually worsen the arithmetic. Existing fixed-rate borrowing delays the impact, but refinancing brings higher costs into the interest bill. Without sufficient growth or fiscal adjustment, stabilising debt requires greater effort. Postponing the decisions makes them harder.
Investors need not suffer a default to lose money. Rising yields can cause substantial capital losses. Treating G7 government debt as inherently safe because its currencies and institutions feel familiar confuses familiarity with financial strength.
Our BBB− equivalent does not predict an imminent downgrade. It shows how far market pricing has moved from the official assessment. Unless fiscal policy changes, further erosion of creditworthiness and gradual downgrades are a plausible outcome.
France has the resources to repair its finances. What it lacks is evidence that its politicians will accept the electoral cost of doing so. Until they act, borrowing continues and higher refinancing costs gradually swell the interest bill.
There are wealthy countries outside the G7 with strong and improving balance sheets. Why hold French government debt when sustained spread narrowing depends on its politicians changing course? That is a risky bet, not a safe haven.