France’s plan to narrow its deficit in 2027 faces a €12 billion increase in debt interest, adding to the stakes if a French bond shock spreads to Italy.
Fortune reported that Oxford Economics economist Ricardo Amaro described a stress scenario in which a sharp rise in French government bond yields spreads to other heavily indebted euro-area countries. He said France and Italy would experience moderate recessions under those conditions, while the euro area as a whole would avoid one.
The government’s draft 2027 budget aims to reduce the deficit to 5.0% of gross domestic product from a projected 5.4% in 2026. The budget has yet to pass. The government expects annual public debt interest to climb from €79.2 billion in 2026 to €91.2 billion in 2027.
The Haut Conseil des finances publiques, France’s fiscal watchdog, has questioned the government’s 1.0% growth forecast for 2027. It says the deficit goal rests on adoption of the proposed budget measures, while the higher interest bill absorbs some of the planned savings. Government calculations cited by the watchdog put the additional annual interest cost of a lasting one-percentage-point rate rise at €3.4 billion after one year and €8.1 billion after two.
High debt levels help explain Italy’s place in the scenario. Eurostat measured Italian government debt at 138.9% of GDP at the end of the first quarter of 2026. France’s National Institute of Statistics and Economic Studies (INSEE) put French debt at 119.0% at the end of the second quarter. The figures cover different reporting periods.
The European Central Bank (ECB) can consider bond purchases when unwarranted, disorderly market moves threaten the transmission of monetary policy. Its assessment also includes whether a country’s debt is sustainable, so access to that support is conditional.
Eurostat is scheduled to release its next quarterly government debt figures on Oct. 21.
