UK and France On the Brink as Debt Storm Gathers Pace

On both sides of the Channel, storm clouds are gathering over the economies of Britain and France. The threat of a rescue by the International Monetary Fund now looms as both countries grapple with spiralling public debt and ballooning borrowing costs. Paris and London find themselves staring at unsettling parallels: bond yields for each now eclipse those of Greece, a reversal with ominous implications. The job for President Emmanuel Macron and Prime Minister Keir Starmer has never looked more daunting, as pressure mounts for credible plans to restore stability.

The immediate alarm is driven by mounting debt: Britain’s public debt stands at approximately 96 percent of GDP, the fifth highest among developed nations, although the rate is stabilising. In comparison, France’s debt-to-GDP ratio hit 113 percent last year and is expected to rise towards pandemic-era highs. Both countries are running sizeable budget deficits—4.8 percent of GDP for the UK last year and a staggering 5.8 percent for France—with little sign of reduction on the horizon.

Parliaments in both countries remain deadlocked over necessary but unpopular measures. Labour backbenchers have already succeeded in watering down £6 billion of planned spending cuts by Chancellor Rachel Reeves, while instability in the French parliament threatens Prime Minister François Bayrou’s €44bn package of fiscal consolidation. Increasingly, market confidence is contingent not on economic numbers alone but political resolve—a quality in short supply given fractious parliamentary dynamics and fracturing party loyalties.

Raising taxes may seem an obvious answer but room for manoeuvre is shrinking. Britain’s tax burden is set to reach a record 38 percent of GDP, while France already extracts 46 percent. Demands for public spending, especially on defence and social care, continue to rise, and both nations must contend with ageing populations, shrinking the base of contributors even as costs mount. France’s notoriously generous pension system, for example, now absorbs a quarter of all public outlay.

Economic growth offers no clear exit. The Office for Budget Responsibility expects UK growth to hover around 1.75 percent annually by the end of the decade, while French projections point to a sluggish 1.2 percent at best. Slower growth limits the options for both governments and investors alike, encouraging a rising premium on their sovereign debt and pushing up borrowing costs still further.

Markets crave clarity, yet current political realities offer little. Britain’s unwritten constitution and control over its own currency may insulate it from the worst, just as France’s euro membership and the European Central Bank provide a theoretical backstop. Yet neither can paper over structural fiscal challenges indefinitely. Much will depend on whether Macron’s government survives a looming no-confidence vote and if Starmer’s team can present a credible autumn Budget to reassure the markets. The next moves will signal not just the durability of these governments but the wider stability of Europe’s once-mighty economies.