France Faces IMF Bailout Risk Amidst Government Crisis and Surging National Debt

France stands on the precipice of a potential financial intervention by the International Monetary Fund as its government teeters dangerously close to collapse. Warnings from the finance minister, Eric Lombard, highlight the risks facing Europe’s second-largest economy, with concerns mounting over ballooning national debt and a persistent budget deficit projected to reach 5.4 percent of GDP this year.

This latest turbulence comes as French long-term borrowing costs climb to their highest level in over a decade. Political impasse and uncertainty about leadership have intensified investor fears, sending the yield on 30-year French bonds soaring to a 14-year peak of 4.42 percent. Ten-year yields have also climbed, reflecting growing discomfort in the markets as the country struggles to chart a stable fiscal path.

France’s sovereign debt has now swollen to a record €3.3 trillion, placing it above the entirety of its annual economic output. The IMF forecasts show the nation’s debt ratio could hit 116.3 percent of GDP this year, easily surpassing the United Kingdom, where gross debt levels are estimated to reach around 103.9 percent. Despite these daunting numbers, French borrowing costs for 10-year bonds remain lower than Britain’s, suggesting some market confidence endures for now.

The political situation remains deeply unsettled. Prime Minister Francois Bayrou faces overwhelming opposition following his attempt to break the deadlock with proposals for significant budget cuts. A confidence vote scheduled for 8 September may well see him ousted, mirroring the fate of predecessor Michel Barnier, dismissed in December after failing to secure the support needed for dramatic public spending reductions.

Market reaction has been swift and punishing. Leading French banks, burdened by significant holdings of government debt, have experienced sharp share price declines. BNP Paribas shares fell approximately 5 percent, while Societe Generale lost more than 6 percent. The CAC 40 index in Paris continues its downward slide, compounding the pressure on the country’s financial sector.

Economists stress that without a credible plan to reduce the deficit, France’s deteriorating fiscal picture could leave it little choice but to seek outside help. The prospect of IMF involvement, unprecedented for France, looms over the government’s attempts to weather the crisis and restore market faith. For now, the direction of policy remains in question, but the stark warning is clear: regaining financial stability will require both political will and economic discipline.