We have discussed several times already about the slow motion suicide of Germany which is destroying its industrial base and the cultural suicide of England.
France is another category of its own. 40 years ago it was a country of engineers from Polytechnique and other "Grandes Ecoles". These people built TGV High Speed Trains, Ariane rockets, Nuclear Power Plants and Airbus planes.
But at the same time, France was also fundamentally a "socialist" country, with a huge civil servant count (57% of employment) and an interventionist state addicted to deficits. Before the Euro, just like Italy, the country balanced its books by devaluing its currency regularly and generating enough growth thanks to its high productivity, which allowed it to compete.
But then the Euro arrived. It destroyed growth and exploded the deficits, so much so that nowadays they are literally incalculable and just computed at the end of each year. Twice, three times the European limit of 3%, who cares? The machine is out of control anyway and eventually the European Central Bank will pay for everything, right?
Or maybe not as Greece painfully learned. But France is not Greece and as the second largest "customer" of the ECB (European Central Bank), the country knows that when you owe too much to the bank, you are not prisoner of the bank, the bank becomes prisoner of you and is obliged to extend forever more "credit".
Everybody knows that such an arrangement is not stable and eventually unravel. It is just a problem for future generations. And then one day, quite suddenly, the future knocks at the door...
France's €107 Billion Deficit Shock: The Next Euro Debt Crisis?
by Thomas Kolbe
Tuesday marked another low point for European fiscal stability. France, a cornerstone of the euro system, confirmed once again that it remains a leading candidate and potential trigger for a future euro financial crisis.
According to the French Ministry of Finance, the deficit of the French central government amounted to around €107 billion by the end of June. These are staggering figures – a deficit that is 14.4 percent higher than originally planned by the government.
Unless the government builds a fiscal firewall and no economic miracle occurs, the central government deficit could rise to around six percent this year. Not included are the gaps in the social security system, municipalities and regions, which account for an additional significant share of France’s overall deficit. It is possible that the second-largest economy in the European Union will end the year with an overall government deficit of around eight percent.
All budget plans would therefore become obsolete. Last year, the government was already calculating with a deficit of five percent – a figure that, under the originally defined Maastricht criteria, should have triggered an excessive deficit procedure. However, the euro debt club has long abandoned any fiscal restraints.
The problem lies not only on the revenue side. While government revenues recently increased by around 3.7 percent, expenditures rose by 5.4 percent at the same time. The state is growing faster than the economic base that is supposed to finance it.
Despite tax increases and difficult negotiations over spending cuts, Prime Minister Sébastien Lecornu has failed to slow down his country’s debt spiral even remotely.
French fiscal policy can no longer be taken seriously. Forecasts from Paris now have the half-life of the French prime ministers who have failed in increasingly shorter intervals.
The spectacle France is presenting to the world will have consequences. The debt struggle of the Grande Nation no longer concerns France alone, but the entire euro system and the European Union.
It is becoming increasingly clear that European policy over recent years has contributed to a dramatic loss of economic dynamism and productivity. France is facing political paralysis, a president without popular support and the ongoing disintegration of a society that maintains one of the largest welfare states in the world, with a government spending ratio of 57 percent, in an attempt to cover its social fractures.
Cultural alien migration has a price, and sooner or later that price inevitably becomes visible in fiscal policy.
France is also following the German model and constructing its own state economy through debt in an attempt to overcome a never-ending productivity crisis. It is remarkable that this belief in the healing power of central planning can be found throughout the European Union. Has nobody learned the fundamental lessons of history?
The more capital is redirected from the productive sectors of the economy into the construction of a political economy, the poorer the population becomes. This is how socialism works.
We know this pattern from Germany: The state is effectively consuming itself. The greater the damage caused by an expanding state economy in the productive sectors of society, the higher the tax burden and inflationary pressures will ultimately become.
Following this logic, France has raised several taxes over the past twelve months. Prime Minister Sébastien Lecornu shifted additional burdens primarily onto companies and higher-income earners.
The special levy on large companies with revenues exceeding one billion euros was extended and is expected to generate around €7.3 billion in additional government revenue. In addition, an extended special tax on high incomes is expected to bring in around €650 million. Further measures complete the tax package. Overall, the additional revenues are intended to reduce the burden on the French budget by around €9 billion.
https://www.reuters.com/business/what-is-frances-2026-budget-2026-02-02/
Yet even this fiscal effort is completely out of proportion to the scale of the budget problem. Tax increases are merely treating the symptoms – they do not solve the structural crisis of the French welfare state.
The problems are similar to those in Germany. There are no serious efforts to resolve the migration crisis, no fundamental reform of social programs and no strategy to create new economic momentum through tax relief for the middle class.
France resembles a slow-motion car crash. Everyone sees the collision coming, yet nobody still has the strength to soften the impact.
What happens if the bond market lowers the thumb on France’s creditworthiness?
The rating agencies have already sent warning signals. Fitch downgraded France’s credit rating from AA− to A+ and pointed to the growing debt burden, political uncertainty and the lack of a sustainable path toward stabilizing public finances.
https://www.reuters.com/world/fitch-abaisse-dun-cran-la-note-de-la-france-2025-09-12/
We are witnessing the first signs of a new euro debt crisis emerging on the horizon. Looking back, we must recognize that politics found it easy for a long time to exploit the fiat credit money system and the ECB, integrated into the political process, in order to maintain the illusion of unlimited political feasibility.
Regardless of where in the EU: Politics continues to uphold the illusion that the welfare system has no limits as long as the flow of credit does not dry up.
Reassured and lulled into a false sense of security, nobody questions the political strategy that led to the economic disaster. Yet these quiet times may soon come to an end as interest rates on bond markets continue to rise.
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