France's Economy & Politics Are In Crisis | The Reason Why

France is caught in a difficult cycle. High debt and weak growth have left the government with less room to spend and reduce debt. They can't cut spending much because that may upset people. They can't raise taxes a lot, or businesses will stop investing. And they cannot wait, as things can escalate sooner than anticipated.

The problem isn't new. It has been accumulating for years. We can understand them better if we understand their recent history. Let's look at how the French economy and politics evolved under Nicolas Sarkozy, François Hollande and Emmanuel Macron.

Crises Dashed Nicolas Sarkozy's Reform Agenda (2007–2012)

Nicolas Sarkozy came to power in May 2007 promising a break from what he considered France's overly rigid economic model. He argued that the country's 35-hour working week, high taxes on labour and capital, and restrictive employment rules weakened incentives to work, invest and hire. He reduced taxes on employment, wealth and investment, arguing that this would encourage work and entrepreneurship.

He wanted more private sector participation and market incentives. However, the collapse of Lehman Brothers in 2008 changed his plans. The government injected capital into major banks, introduced a stimulus package and expanded state intervention to prevent the crisis from spreading through the economy.

The eurozone debt crisis added more pressure. France worked with Germany on the rescue measures, while the European Central Bank (ECB) hiked interest rates in 2011. That burdened its treasury. The gap between French and German bond yields widened, as investors grew more concerned about France's finances.

Public debt rose from around 64% of GDP when Sarkozy took office in 2007 about 90% by the end of 2012.

The year 2010 was pivotal for Sarkozy. His government raised the minimum retirement age from 60 to 62 along with certain changes to pension rules. Rising life expectancy pushed the proportion of retirees to workers up. That means the government has to pay pensions for more years. If people worked two more years, the pressure on the treasury would be lowered – that was the math. But that wasn't taken well by people. Railway workers, refinery workers and public-sector employees went on strike, while fuel shortages disrupted daily life.

By 2012, rising unemployment, weak economic growth and frustration over handling of the crisis eroded Sarkozy's popularity. Pension reforms and a perception that he favoured the rich alienated many workers. Result: he lost the presidential election to socialist François Hollande.

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François Hollande Deepened Cracks In Socialist Party (2012–2017)

Hollande promised a more equitable economic settlement and a departure from austerity. He pledged to reverse some of Sarkozy's pension changes and campaigned on taxing the rich.

However, that didn't solve France's employment and competitiveness problems. So Hollande introduced measures that drew criticism from his own socialist voter base, who saw them as subsidies to businesses.

Unemployment was still high. Negative interest rates reduced pressure on the exchequer but also supported financial markets. Many large French companies generated revenue abroad, so their share prices could rise even while domestic employment remained weak. The divergence between stock-market performance and the labour market was important for upsetting people.

Then came the El Khomri labour law in 2016, becoming a defining moment for Hollande's presidency. The law relaxed rules on working hours and hiring. Unions and socialists opposed it, arguing that it weakened worker protections. Demonstrations and strikes followed, and the government used Article 49.3 to pass the legislation without a conventional final vote in the National Assembly. This law is used only in certain exceptions.

The dispute damaged Hollande's authority and deepened divisions within the left. His government attempted reforms to improve competitiveness, but the political coalition that had elected him didn't support it. In December 2016, Hollande announced that he would not seek re-election.

That weakened the party and opened the way for Emmanuel Macron, Hollande's economy minister. Macron presented himself as a pro-European, economically reformist alternative. At the same time, the far-right party gained traction.

Hollande's tenure ended with public debt of around 98% of GDP by the end of 2017, up from 90% when he started.

Yellow Vests & Pandemic Shattered Emmanuel Macron's First Term (2017–2022)

Macron's 2017 election victory broke the dominance of France's traditional centre-left and centre-right parties. His movement secured a parliamentary majority, giving him considerable room to pursue reforms. His programme included changes to labour market rules, a corporate tax cut, and the replacement of the wealth tax on most financial assets.

He wanted to encourage investment, improve hiring and make France more attractive to businesses. Growth accelerated in the pre-pandemic years, and unemployment declined. The stock market also performed strongly over the period, supported by global liquidity and the earnings growth of major multinational companies.

Even before Macron became president, France had a phased fuel tax increase policy. This was done to discourage fossil fuel use. However, his government increased the taxes higher than the earlier plan. Under the earlier plan, the carbon price was set to reach €39 per tonne of CO₂ in 2018 and €47.50 in 2019. Macron's government raised these targets to €44.60 and €55, respectively, with further increases planned to reach €86.20 by 2022. When global fuel prices rose sharply in 2018, this added to the burden on people who depended on cars and had few alternatives.

It ignited yet another protest, famously known as the Yellow Vests protest. The movement expanded from fuel prices to purchasing power, taxation, political representation and the feeling that decision-makers in Paris were detached from everyday life.

Macron eventually cancelled the planned increase and announced a package of measures to support household incomes.

The movement revealed a limitation of the government's technocratic approach. A policy can have a coherent economic rationale and still lack political legitimacy if affected groups believe they were not consulted or that the burden is unfair. That lesson would matter again during the pension reform confrontation in 2023. But before that, let's talk about the COVID pandemic.

During the pandemic, Macron's government adopted a “whatever it costs” approach, supporting wages through short-time work schemes, providing state-backed loans to businesses and offering direct aid to affected sectors. That cost a lot.

Public debt rose from around 98% of GDP in 2019 to approximately 112% in 2022.

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Macron Touches Pension Reforms & Invited More Fragmentation (2022–2026)

Macron won re-election in 2022, but not with a majority. This meant a coalition government and more negotiations with other parties.

The government decided to raise the statutory retirement age from 62 to 64. As with any labour- and pension-related reform before, this brought the conflict again. The problem was the timing. High food and fuel prices due to the Russia-Ukraine war had already strained people's wallets.

The government used Article 49.3 to enact the reform without a final parliamentary vote. Demonstrations and strikes followed, and the reform deepened opposition to Macron among the left and unions.

Meanwhile, the ECB shifted sharply towards a hawkish stance, raising its deposit rate from -0.5% before the tightening cycle to 4% in September 2023. Higher rates helped bring inflation down, but raised borrowing costs.

Political Instability Has Created An Uncertain Future

In 2024, Macron called a snap parliamentary election after the far-right party, National Rally, performed strongly in the European Parliament election. The result of the 2024 French elections was more fragmented than before. No bloc secured an outright majority.

The government's economic challenge had become more difficult. France needed to reduce its deficit, but any credible adjustment required decisions about taxes, pensions, public services and transfers. A fragmented parliament made it harder to agree on those choices.

The turnover of prime ministers reflected this problem. Élisabeth Borne served for a couple of years between May 2022 and January 2024. Then, Gabriel Attal served for a few months till September 2024. Michel Barnier became prime minister in September 2024, but his government fell in December after a no-confidence vote linked to the budget. François Bayrou then took office and also fell in September 2025. Sébastien Lecornu was appointed in September 2025, briefly resigned, and was reappointed in October 2025.

The government could identify the need to reduce borrowing, but it struggled to agree on which groups would pay the cost. So, we see this kind of indecisiveness and political instability.

Today, the streets of France are witnessing protests over school conditions. Unfortunately, the government has less room to respond through additional borrowing without further unsettling investors.

In early October 2026, France's 10-year government-bond yield approached 5%, a level not seen since 2002. Its spread over German government bonds has also widened. IMF projects that this year, the debt-to-GDP ratio could hit 120%.

Final Take

France has crossed unwanted paths every few years in the past couple of decades. It knows it must increase revenue or cut costs to reduce deficits and debt. To raise revenue, it needs to raise taxes. Raising taxes could discourage investments that ultimately drive employment. Cutting expenditure is also difficult because reducing pensions and healthcare can disrupt social balance, as seen earlier. The political divide and worsened economic conditions have made decision-making an impossible task for the government.

As the 2027 presidential election approaches, France's political parties are offering different solutions to the debt problem.

President Emmanuel Macron's centrist camp, the Renaissance party, has proposed a €54 billion fiscal consolidation package combining spending cuts with revenue measures.

Marine Le Pen's far-right National Rally has promised €140 billion in net savings by 2032, alongside tax cuts and a reversal of pension reforms.

On the left, Jean-Luc Mélenchon's radical-left La France insoumise wants higher taxes on the wealthy and more public spending. He has also proposed freezing or converting debt held by the European Central Bank into perpetual, zero-interest debt.

These proposals reflect a difficult trade-off, making the future more uncertain. That uncertainty is worrying everyone, everywhere – streets, households, boardrooms and bond markets.

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