Insight Investment

• France has a persistent deficit problem, linked to the political problem. Pensions are not the only part of that, but they are the largest part.
• Suspending pension reforms may reduce the risk of immediate re-collapse of Prime Minister Lecornu’s government, but worsens the fiscal deterioration and does very little for longer-term political risks.
• S&P is likely to downgrade France to A+ on 28 November 2025.

Over the last year, three French prime ministers have been ousted because of an inability to pass a budget with any sort of fiscal consolidation. While this is partly due to political fragmentation (see our previous article on the situation here), there is a circularity to this causation. Budget problems and the attempts to fix them have in part caused the political problems, and vice-versa. So it is worth looking at the French fiscal issues in more detail: what exactly are the problems, and is there something unique to France behind them?

When it comes to fiscal sustainability, France is one of the countries we are most concerned about (see our recent paper on fiscal sustainability here). This is driven by persistent budget deficits and the political inability to fix them, and the result is unsustainably rising debt/GDP levels.

Overall French public spending is 7.8% of GDP higher than the EU average. The breakdown shows that France spends more than the EU average across almost every category. Pensions are 2.7% of GDP higher, and health is 1.5% higher. If France is politically unable to reduce spending on pensions, then any successful budget consolidation will either need to significantly cut health spending, or impose broad austerity across almost all government functions – both of which are also politically very difficult.

France vs EU average spending (% of GDP)

Source: Macrobond, Eurostat.

The question around pension spending is now crucial for French politics. For more on this issue, read our paper.