Debt fears dominate French election debate

A high-profile presidential debate on Aug. 27, hosted by France’s main business lobby MEDEF, placed the country’s public debt and fiscal outlook at the forefront. Candidates outlined sharply contrasting approaches to managing debt levels, with discussion framed by reports that France’s public debt stands around 116–117% of GDP. The exchange highlighted how fiscal strategy has become a central issue for both political leaders and market participants.

The setting before an audience of employers and business leaders underscored concerns about how future policy choices could affect France’s financing conditions, economic environment and relations with financial markets. The debate came as investors monitor the autumn budget process and forthcoming credit ratings assessments.

Far-right contender Marine Le Pen said during the debate that she will present a €125 billion cost-cutting package aimed at putting public finances back on track. The plan was framed as a means to restore order to the state’s accounts, though detailed measures were not set out in the debate coverage. Her proposal positioned spending reductions and savings as the main lever for addressing high debt levels.

Hard-left candidate Jean-Luc Mélenchon took an almost opposite stance, renewing calls at the event to cancel a large portion of France’s public debt. His proposals include writing off debt held by the central bank, effectively shifting the adjustment burden away from budget cuts. This approach focused on restructuring the stock of debt rather than tightening fiscal policy.

Centre-right figure Édouard Philippe strongly rejected Mélenchon’s approach, accusing him of wanting to "burn" France’s debt. Philippe warned that large-scale debt cancellation could risk shutting France out of the banking system. His intervention reflected concerns about preserving access to market financing and the integrity of the financial architecture that supports government borrowing.

Financial markets moved in tandem with the heightened debate over France’s fiscal path. Shares in major French banks, including Société Générale (GLEp), Crédit Agricole (ACAp) and BNP Paribas (BNPp), fell by roughly 3–4% in the coverage period surrounding the event. Broad French blue-chip equity indices reached a one-month low, signalling investor unease about political and fiscal uncertainty.

In government bond markets, the yield on the 10-year French OAT was reported in a range of about 4.05%–4.107%, while comparable German Bund yields were near 3.22%. The spread between French and German bonds widened, reflecting a premium for holding French debt as markets priced in increased fiscal and political risk. Some reporting noted that French yields were being set above those of certain peers, including Italy, underscoring how investor perceptions have shifted.

These moves indicate that investors are closely tracking how election platforms could influence France’s ability to stabilise its public finances. With debt levels already elevated and key budget decisions approaching, the policy choices signalled in the debate have become an important factor for both equity and bond market pricing.