France’s fiscal uncertainty raises risks for businesses

As his government grapples with rising debt and sluggish growth, French Prime Minister Sébastien Lecornu is betting on a combination of spending cuts, wage freezes, and targeted tax measures to bring public finances under control and restore confidence. 

Taken together, budget consolidation measures in the draft 2027 Finance Bill, currently being debated in parliament, amount to approximately EUR 54 billion according to current government estimates, although the final package remains subject to parliamentary negotiations. 

The scale of the task is daunting. French public debt is expected to reach 119.3% of GDP at the end of 2026 and 121.7% in 2027. The government wants to reduce the deficit to 5% of GDP next year, though many economists believe the chances of meeting that target are slim. Independent forecasts suggest the deficit is more likely to remain between 5.2% and 5.5% of GDP. 

The High Council for Public Finances, France’s independent fiscal watchdog, said the budget’s deficit-reduction plans were the minimum that might reasonably be expected and questioned the government’s economic forecasts. Financial markets have also delivered a warning. The spread between French 10-year government bonds and German Bunds widened from around 128 basis points in early October to about 160 basis points at the time of writing, illustrating both investor concern and continued market volatility. 

Fiscal challenges have real-world consequences. Higher sovereign borrowing costs can feed into tighter financing conditions, weaker economic growth, and lower business confidence. As liquidity pressures build, companies typically become more defensive, delaying payments, protecting cash reserves, and tightening customer credit terms. The result is less cash flowing through supply chains and greater pressure on working capital. 

If France fails to stabilise its mounting public debt, the effects will extend beyond its borders. As the eurozone’s second-largest economy and one of the world’s largest trading nations, France’s fiscal trajectory matters internationally. A prolonged squeeze could affect demand, financing conditions, and payment behaviour across global supply chains. 

Political fragmentation complicates budget approval 

The latest reading of the spread underlines the renewed pressure on French borrowing costs. Investors are demanding a greater premium for holding French debt because they have doubts about the government’s ability to put public finances on a sustainable path. There are two main reasons for their scepticism. 

1. The budget assumptions look optimistic 

The government forecasts GDP growth of 1% in 2027, somewhat above our economists’ forecast of 0.8%. It is also forecasting inflation of 1.8%, below several independent forecasts of around 2.5%. Markets worry that the fiscal plan rests on relatively favourable economic assumptions. 

Lecornu’s plans also remain vulnerable to external events. The conflict between the United States and Iran, together with disruption in the Strait of Hormuz, could keep energy prices elevated. If inflation proves more persistent, financing costs could remain higher for longer and economic growth could weaken further. 

“Together, stubborn inflation and lower growth could undermine the prospects of a meaningful reduction in the French budget deficit next year,” says John Lorié, Chief Economist at Atradius. “With commitments to increase spending on defence, health, and other areas, government borrowing could increase. With borrowing costs going up as well, the budget deficit may then grow rather than shrink.” 

2. French politics may dilute the package  

The French government only passed its 2026 budget after months of wrangling and a series of political crises. Little has changed since then. The administration again faces a fragmented parliament, making smooth passage of the budget unlikely. 

It is a familiar pattern. In 2025, the fiscal consolidation package was reduced from EUR 60.6 billion to EUR 50 billion following political opposition. Many observers expect the current budget to require similar concessions. If the government attempts to force it through parliament, it could face a no-confidence vote. 

Adding to the uncertainty, France is moving closer to its next presidential election. Although candidates show increasing awareness of the sensitivity of the current state of public finances, political uncertainty is high. It makes it harder for investors to judge the long-term direction of fiscal policy and adds another layer of risk for financial markets. 

A sovereign debt problem, not yet a crisis  

Against this background, investor concern is understandable. Rising debt levels and doubts over the government’s ability to deliver fiscal consolidation have weakened confidence. But concern is not the same thing as crisis. 

“Its public debt may be reaching record highs, but France is still a major economy with strong access to capital markets,” says John Lorié. “Credit rating agency Fitch recently reaffirmed its A+ rating. The issue today is not a funding crisis, but the gradual erosion of the country’s reputation for fiscal sustainability and the accompanying rise in borrowing costs that needs to be halted.” 

Portugal shows that lost fiscal credibility can be restored, but it also highlights the scale of the challenge facing France. Since its sovereign debt crisis, Portugal has reduced its debt burden through sustained expenditure restraint, stronger employment growth, and continued political support for fiscal discipline. It also benefited from a prolonged period during which economic growth exceeded the average interest rate paid on government debt. 

However, France cannot easily reproduce those conditions. Portugal’s reforms followed an international bailout, while today’s environment is characterised by higher interest rates, ageing-related spending pressures, and rising defence expenditure. Portugal therefore offers a lesson in restoring credibility rather than a ready-made blueprint. 

Markets nevertheless worry that France may be too politically fragmented to take the difficult decisions needed to improve public finances. As confidence weakens, borrowing costs rise. Higher borrowing costs then make fiscal consolidation harder, creating a cycle that is difficult to escape.

The impacts on business  

Fiscal deterioration filters through to the real economy in several ways. Most importantly, when governments pay more to borrow, financing costs tend to rise more broadly. Businesses are already facing higher costs and challenging trading conditions. Prolonged fiscal uncertainty could make access to credit and investment more difficult or expensive. 

“For businesses in France, higher government bond yields could eventually translate into higher refinancing costs and reduced access to credit, and the longer the government delays necessary fiscal adjustments the higher the cost to business could be,” says Christophe Cherry, Regional Director France, Belgium, Luxembourg. “Ultimately, high public debt weighs on companies’ ability to invest and puts pressure on margins and liquidity” adds Cherry. “The high level of uncertainty around French public finances, magnified by a difficult political situation, makes businesses wary of committing to significant investment in the short term.”  

There is evidence that these pressures are already affecting corporate payment behaviour. The 2026 Atradius Payment Practices Barometer found that late payment affects around three in five surveyed businesses in France.

Customer payment risk continues to weigh on working capital, although the pressure looks different from a year ago, when nearly one third of French businesses surveyed reported longer collection cycles, while many used invoice financing and bank loans to ease liquidity pressures. This year, the strain is more evident in day-to-day cash management: around 40% report difficulties with cash-flow planning and just over one third reduced liquidity headroom. Moreover, around one in seven businesses have delayed supplier payments or faced higher financing needs. 

Nearly half of surveyed suppliers have reduced B2B sales on credit, leaving trade credit at just 22% of B2B sales. Looking ahead, 38% expect customer insolvency risk to rise further over the next 12 months, while 52% expect it to remain elevated. These findings suggest many French companies entered the current period with constrained liquidity and a defensive approach to trade credit. 

The current situation cannot continue indefinitely. At some point, France will need to improve its fiscal position through a combination of higher revenues, lower spending, or both. The longer adjustment is delayed, the higher the risk that markets demand an even greater premium for financing French debt. 

Subdued growth and tighter financial conditions could intensify existing pressures. Weaker sales and thinner margins would leave companies less able to absorb payment delays or financing shocks. Businesses may respond by protecting cash, tightening customer terms, and granting trade credit more selectively. If conditions deteriorate further, insolvency risk could rise. 

A challenge for trade  

France may not be heading towards a fiscal crisis, but current fiscal and political uncertainties are creating a more challenging environment for businesses and investors. 

The effects do not stop at France’s borders. Reduced confidence and tighter financing conditions can filter through international supply chains, affecting payment behaviour, working capital, and insolvency risk. The commercial impact is likely to emerge gradually. Businesses operating in France, or trading with French counterparties, should monitor customer payment behaviour, insolvency trends, budget negotiations, and ECB policy decisions closely. Robust credit management and trade credit insurance can help protect cash flow if conditions deteriorate. 

France's fiscal trajectory is no longer solely a public finance issue, it is increasingly becoming a business risk that companies operating in France should actively monitor. 

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