France is experiencing political turmoil, with five prime ministers since May 2022.
The most recent two, Michel Barnier and François Bayrou, lost no-confidence votes over their budget plans, a factor cited in Fitch's recent rating downgrade.
This edition of Macro Trends examines how this instability, combined with a widening budget deficit and slow economic growth, is affecting the country's markets.
We'll look at why investors are demanding a higher premium for French debt, as seen in the recent rise in 10-year yields, and why the domestic stock market is struggling.
Euro Area Deficit
This first chart highlights the persistent pressure on France’s public finances: the deficit is projected to remain well above that of other major Eurozone economies and far from the European Union’s 3 percent of GDP ceiling.
France has until 2029 to attain the 3% mark but to reach it, the country will have to settle its political turmoil and find some common ground on a budget that will work towards that goal.
Global General Government Expenditure as % GDP
France is among the highest spenders in Europe when measured by government expenditure as a share of GDP. Eurostat data for 2025 show French general government spending at roughly 56 percent of GDP, placing it just behind Finland, level with Austria, and well above the EU-27 average of 48 percent.
This high baseline of expenditure limits fiscal flexibility.
Combined with large deficits and rising debt, it underscores the challenge France faces in bringing its deficit below the EU’s 3 percent ceiling by 2029,especially as borrowing costs climb and political instability complicates efforts to agree on a credible, multi-year consolidation plan.
EU Cumulative Growth Rate by 2030
The French economy has struggled to achieve sustainable growth.
According to IMF projections, by 2030, France is expected to expand cumulatively by only6.7% - the fourth-lowest rate in the EU, only ahead of Austria, Germany, and Italy.
While the growth momentum appears to be shifting toward Central and Eastern Europe, many of France’s neighbors are also projected to outpace it.
France Macron's Favorability Ratings by Term
Emmanuel Macron’s favorability never surpassed the 50% mark, only hovering near that level during his presidential campaigns.
During his first term, support declined sharply in 2018–19 amid the Yellow Vests protests but later recovered in the run-up to his re-election.
Since the start of his second term, however, favorability has trended downward again. While it has not returned to the late-2018 lows, Macron's ratings remain subdued at around 20%.
Euro Area Government 10 Year Yields Cumulative Growth Since 2024
Looking at Yields, the French 10-year has climbed about 0.9 percentage point since 2024, the largest increase among the major Eurozone issuers shown.
Germany is up by roughly 0.7 while Spain and Greece have risen only 0.3 ppt with Italy standing out in the opposite direction, down about 0.2 ppt.
This pattern highlights how investors are demanding a steadily higher premium for French debt even compared with sovereigns with weaker credit, tracking Fitch’s latest downgrade – see next chart.
Euro Area 10y - OAT Spreads vs Sovereign Ratings
France’s sovereign ratings have become a point of debate among global agencies, with some even moving to downgrade the country.
According to Scope, France’s debt is currently rated AA-, the same as Belgium, a country often associated with political gridlock and unstable coalition governments. Yet, French bonds are trading around 20bps below Belgian yields.
What stands out is that French yields are now converging with those of Italy and Greece - countries positioned at the bottom of the EU’s rating scale (BBB+ and BBB respectively).
The Greece-France yield spread turned negative a few weeks ago, and the Italy-France gap also appears to be heading in that direction.
Global Cac 40 Performance vs Peers
On the Equity front, the CAC 40 has lagged its global peers throughout 2025 as well.
By mid-September the French benchmark is up only 4.7 %, far behind the IBEX (32.8 %), FTSE MIB’s(25.9%), and the DAX (16.3 %).
The CAC’s underperformance reflects a combination of weak domestic growth, persistent budget concerns, and political uncertainty.
