France's new budget takes debt to a record near 122% of GDP after 54 billion euros of cuts

Divide the June debt stock of 3.596 trillion euros by its 119% ratio and French output comes out near 3.02 trillion euros ^[12][1]. The 54 billion euros of proposed cuts ^[2] are therefore about 1.8% of a year's GDP ^[2], and the government still projects the ratio rising roughly three points, to nearly 122% ^[3][3]. Held at today's implied GDP, three points of ratio is about 90 billion euros of extra debt ^[7], more than the cuts themselves. France last balanced a budget in 1973, and next year's plan does not come close ^[17][2].

Amiel presented the cuts as unavoidable. "We cannot sweep the dust under the carpet," he said ^[5]. Any cut that parliament removes would widen a budget the government already says will overshoot EU spending limits ^[3].

Fortune's report gives the reason lenders care: investors demand more in return when they finance deficits ^[18]. The ratio has added 21.1 points since it stood at 97.9% in 2019 ^[13][5], and France now sits about 30 points above the euro-area average of 88.9% ^[14][6]. Italy at 138.9% and Greece at 143.5% carry more ^[15]. The closer comparison is the United States at 122.6% ^[15]. At nearly 122%, France would be within about 0.6 points of it ^[4], without the dominant reserve currency that supports Washington's borrowing ^[16].

Melenchon's plan is a deal term, and its terms are specific. A frozen ECB holding would become perpetual, "debt with no repayment deadline and a low or zero interest rate," he said ^[8]. A claim that never returns principal and pays no coupon is worth nothing to whoever holds it ^[8], and he does not dispute that. "Freezing it is therefore effectively the same as canceling it," Melenchon said ^[7]. Lagarde answered from the borrower's side: if France froze its debt now, she said, creditors could demand exorbitant terms the next time it borrowed, or refuse outright ^[10]. On the right, Marine Le Pen has called for reforms to "clean up" public finances, and others there call Melenchon's idea unrealistic ^[11].

From here the cuts could pass roughly intact and leave the government's 122% path in place, parliament could trim them and push the ratio higher, or a candidate could carry a freeze of ECB-held bonds into government ahead of an election where the debt is already a defining issue ^[1]. I think the budget vote is the nearer risk for holders of French debt. A freeze is the larger one, because Lagarde's warning covers a refusal to lend as well as worse terms ^[10]. The counter-case is that even at the projected level France would still trail Italy by 16.9 points and Greece by 21.5 ^[9]. The report does not include French bond yields or spreads, so it does not show how much of this lenders already charge for. The view that these cuts only slow the climb is wrong if next year's debt ratio comes in at or below 119%.