Breathtaking today (12.9.25) the “verdict” of the US Evaluation House Fitch in relation to its credit rating Francethat is, the ability to refinance the public debt her.
In case of downgrading France’s public debt from “AA-” to “A+”, according to the German press, one could be triggered by one A new wave of increased yields of French and more generally European bonds (which could also be precise the interest rate on the borrowing and the forthcoming Euro-confessors that the Commission wants to issue for the defense).
A sparmer of such an evolution is none other than the Fall of French Prime Minister Bairo last Monday, September 8, 2025, and the political uncertainty that continues to exist in the country, even after the new Prime Minister (Sebastian Lekorni).
“France has not been a balanced budget for 51 years”
When François Bairou appeared before parliament this week to seek a vote of confidence, he said that “France has not been budget for 51 years.”
“Ladies and gentlemen, you have the power to overthrow the government, but you don’t have the power to erase reality!” Bairo shouted in the plenary of the National Assembly. Shortly afterwards, as expected, his vote of confidence failed. The majority of MPs were not willing to support Bairo’s austerity budget.
France’s debt level is 118% of GDP, or just over 3.4 trillion. euro. Along with France, Italy, with 3.2 trillion. euro (almost 140% of GDP), represents another fifth of the eurozone debt. Germany, Europe’s largest economy, has a similar share (though much lower as a percentage of GDP).
France is already in the process of excessive EU deficit and is subject to increased control by Brussels officials – but this has achieved little so far. However, the growing yields of the bonds cannot be ignored, Handelsblatt points out.
The risk premiums of French government bonds compared to German bond loans are now higher than those of Greece, A country affected by the crisis of the euro, and have temporarily surpassed those of Italy.
The Debt Bomb Show that has been lit in Germany
But is France, “exception”? Germany, at least at first glance, is in a pretty comfortable position. The debt index is only 64% of the annual financial product (GDP). This is half of the debt that the US and France incur. However, National debt will also increase rapidly in Germany in the coming years.
The widespread debt margin will be used to “fill the existing budget gaps or to fund projects beyond defense or infrastructure”. So, Of the € 69 billion additional debt this year, only about € 16 billion would be guaranteed to enter defense and infrastructure, Bundesbank estimates. “Overall, debt threatens to increase without reinforcing defensive potential and infrastructure to the same degree.”
The German bond market is already sending an undisputed message that reckless lending has a price. At 3.41%, the 30 -year federal bond recently reached its highest level for 14 years. Demand for German securities has also been recently restricted. A sign that interest costs could continue to grow.
While the federal government paid just below four billion euros in interest annually during the low interest rate phase, the cost of budget interest has now increased to 30 billion euros. And according to the federal government’s financial plan, these new debts will be more than doubled by 2029.
This limits the margin of maneuvering for future governments. While The federal government is currently spending about 6% percent of its budget in interest, this could increase to 13% by 2040, according to the IFO Institute.
But only if the interest rate on the new debt remains low. If it is increased even slightly, the ratio of interest rates will increase to more than 16% by 2040.
This threatens Germany, something that other countries are experiencing at the moment. “In many economies, debt service is as high as spending on education, defense or public pensions,” said Bank of International Settlements (BIS), A kind of central bank for… central banks.
The sharp increase in interest costs would have at least one positive result, according to IFO chief Clemens Fuest. This would leave less money for other tasks, “which increases the pressure for reforms”.
So far, however, Klingbeil has mainly opened new budget holes by preferring to resolve conflicts within the federal system by having billions more in states and municipalities. Nevertheless, even the states are running out of money.
The International Monetary Fund (IMF) expects that world public debtAs a percentage of world GDP, it will increase by 2.8 percentage points this year, reaching 95.1%. By the end of the decade, global public debt will reach 100% of GDP, “overcoming the climax observed during the pandemic”.
And this is the prediction, which presupposes Normal growth. The IMF also provides for a negative scenario. According to this scenario, global public debt could increase to about 117% by 2027, reaching “at a level not observed in World War II”.
“Public finances were already pressured and the debt levels were high in many countries,” the IMF’s latest “Fiscal Monitor” said. Now, further risks emerge: tariff conflicts, growing yields of government bonds to large economies, higher risk premiums for emerging markets and increasing military spending, especially in Europe.
In the “Exhibition on World Debt”, the OECD estimates that Industrial countries will issue 17 trillion bonds. dollars this year, “a record”. Borrowing from developing and emerging countries has also increased abruptly, from about 1 trillion. dollars in 2007 in 3 trillion. dollars last year.
Apart from the debt of EU members, there is the debt of the EU itself: it amounts to € 800 billion!
However, no one in Brussels wants to hear about the threat of a euro crisis – let alone talk about it, the same report notes.
In her annual speech on the situation of the European Union (10.9.25), Commission President Ursula von der Laien He never mentioned the word “debt”, says Handelsblatt.
And yet, Koion herself is now facing debt problem. Since the beginning of the pandemic, The Commission has raised about € 800 billion in the markets for the Koronovi Recovery Fund. Now is the time to repay them: The draft for EU’s next long -term budget (2028 to 2034) has 24 billion euros per year for debt service. This money is either missing elsewhere – or must be offset by increasing contributions by the Member States.
Economists like Guntram Wolff from Think Tank Bruegel They recommend that the debt be fully repaid, but to refinance with new EU bonds. This would give the Commission greater flexibility in its budget. However, the German government rejects it: it wants to prevent the EU’s debt from becoming the rule.
Supporters of the new EU debt are citing former ECB President Mario Draghi. It constitutes the joint funding of European public goods, such as air defense or large infrastructure projects. This would save costs in the long run, the Italian argues.
Von der Leyen has partially accepted these calls: in her proposal for long -term budget, she proposes two special funds funded by debt outside the regular budget:
- One will distribute low interest rate loans totaling € 150 billion to governments. They could use them to fund infrastructure, defense projects or even digitization.
- The second is a “crisis mechanism” of € 395 billion that can only be activated in the event of an emergency – and only if all 27 Member States agree.
The dangerous debt explosion is in no way limited to the eurozone. Public debt in Great Britain has reached almost 100% of GDP. The burden of interest in this debt will amount to 8.3% of public spending this year, larger than the budget funds for education, defense or investment.
Economists such as former central banker Willem Buiter warn that pressure from financial markets in Prime Minister Keir Starmer’s government will be “at least as effective as the IMF pressure in the 1970s”. Then, the IMF forced Britain, which was threatened with national bankruptcy, to adopt a harsh austerity program.