Some 15 years after the fiscal crisis that pushed the euro zone to the brink of collapse in the early 2010s, the standing of Europe's major economies has flipped. Countries once dismissed as the continent's problem children under the label "PIGS" — Portugal, Italy, Greece and Spain — have turned into fiscal model students after sweeping structural reforms. France, long a driver of the European economy, is instead raising concern as budget deficits accumulate and government debt snowballs. Paris has moved to overhaul pensions and cut spending, but public resistance and political turmoil have blocked each attempt, leaving the country trapped in a cycle of worsening finances.
French fiscal authorities said on the 20th that the government debt ratio will reach 119.3% of gross domestic product this year and climb to 121.7% next year.
Eurostat, the statistical office of the European Union, reported in April that France ran a budget deficit of 152.5 billion euros last year. That amounted to 5.1% of GDP, far above the EU's deficit ceiling of 3% of GDP. Government debt stood at 3.4605 trillion euros, up 154.4 billion euros from a year earlier. The debt-to-GDP ratio rose to 115.6% last year from 109.5% in 2023.
The trend contrasts sharply with the southern European countries that were once the epicenter of the euro zone crisis and are now posting clear fiscal improvement. Greece recorded a budget surplus equal to 1.7% of GDP last year, and Portugal posted a surplus of 0.7%. Greece's debt ratio, at 146.1% of GDP, remains higher than France's, but it has fallen 18.2 percentage points in two years from 164.3% in 2023.
Financial markets are also treating these countries very differently. Reuters reported that France's 10-year government bond yield spiked as high as 4.9877% during the session that day, approaching the 5% threshold. Greece's 10-year yield stood at 4.248% the same day, with Italy at 4.516% and Portugal at 3.884%. Investors now demand a higher yield on French debt than on bonds issued by Greece, whose 10-year yield reached 40% in 2012 at the height of default fears. The Financial Times noted that while PIGS once referred to heavily indebted southern European economies struggling with fiscal strain, the euro zone looks very different 15 years on.
Analysts attribute the divergence largely to the severe austerity and structural reform undertaken in southern Europe. In exchange for bailout commitments from euro zone members and the International Monetary Fund, Greece cut public-sector wages and pensions while raising its value-added tax and fuel taxes. Labor market deregulation and the privatization of state-owned enterprises followed. Portugal likewise cut public spending, raised taxes, lowered the cost of dismissing workers and restructured unemployment benefits.
The price of reform was steep. Greece's economy contracted sharply under austerity, and unemployment soared to around 27% in 2013. Portugal suffered a severe downturn as well, with unemployment topping 16% that year. Growth later revived as tourism and employment recovered, and public finances improved along with it.
France, by contrast, must repair its fiscal structure on its own, without external pressure. Government spending came to 57.2% of GDP last year, 7.4 percentage points above the euro zone average. Vast sums flow into pensions, health care and social security, but resistance to welfare cuts makes spending reductions difficult. A fragmented parliament leaves no bloc capable of forcing through a restructuring of welfare outlays.
The pension overhaul that ran into fierce opposition is the clearest example. President Emmanuel Macron's government legislated a reform in 2023 that would gradually raise the retirement age at which pensions begin from 62 to 64, only to face nationwide strikes and mass protests. As the political turmoil persisted, Prime Minister Sébastien Lecornu decided to suspend implementation of the overhaul.
Raising taxes is also a hard sell given an already heavy burden. France's tax-to-GDP ratio stood at 43.5% in 2024, above the Organisation for Economic Co-operation and Development average of 34.1%.
Some analysts say there are few tools left to calm market jitters. In 2012, then European Central Bank President Mario Draghi steadied markets by pledging to do whatever it takes to preserve the euro, later unveiling a bond-buying program that eased fears of a euro zone breakup. But the ECB's bond purchases carry strict conditions, limiting the scope for immediate intervention.
Japanese money is another variable. Japanese investors, long a major buyer of French government bonds, may repatriate funds as the Bank of Japan leans toward higher interest rates, a shift that could add upward pressure on French yields. Nobel laureate economist Paul Krugman wrote on his blog recently that France may have gone from being too big to fail to too big to rescue.
Tension is rising as further large demonstrations are planned in France. The government intends to deploy military personnel on guard duty on the 24th.