France at a crossroads: the implications for public debt, the bond market and the defence sector

Investors have been paying close attention to the upcoming French elections. Drawing on expertise across several sectors, we analyze the macroeconomic implications, and discuss the outlook for French public debt, sovereign bonds, the energy sector and defence.

The next French presidential election has become one of the most consequential turning points in the country’s recent history – and investors are paying note. The first round will take place on 18 April 2027, with the leading two candidates proceeding to the second round two weeks later. The next President of the Republic will take office on 14 May 2027, marking the end of President Macron’s ten-year tenure.

There’s also the third part of the election – in order to secure a majority in the National Assembly, the incoming President is highly likely to dissolve the Assembly during the first days of her or his mandate.

Recent polling agrees on one thing – that Marine Le Pen of the right-wing National Rally (Rassemblement National or RN) is currently almost certain to reach the second round. But the race for the remaining place in this initial stage is tighter than ever and the outcome remains uncertain. Jean-Luc Mélenchon is the standard-bearer for the left-wing France Unbowed (La France Insoumise or LFI), while Edouard Philippe (Horizons, a part of President Macron’s coalition) appears to be best placed among the centrist candidates – for now.

If the election were held tomorrow, Le Pen stands a high chance of winning. She currently leads every single second-round matchup tested in the latest polls, but experience shows that anything can happen in the year before a presidential election, and her victory has been predicted before. The fragmentation in the political centre represents a substantial risk of a second round contested between the extreme right and left, which could lead centrist candidates to consolidate as the campaign progresses.

Regardless of who wins, the incoming President is far from guaranteed a majority in the National Assembly. The most likely outcome remains a three-way fragmentation of the lower house, which will inevitably restrict the implementation of the presidential program. Alliances will therefore be necessary, which in turn limits the risk of radical economic policies being enacted, both in terms of fiscal adjustments and structural reforms.

This political fragmentation comes at a particularly challenging time for France’s public finances. The French public deficit is a projected to widen to 5.4% of GDP in 2026, up from 5.1% in 2025. It has risen sharply in recent years, and it is only going to keep rising faster. French debt-to-GDP has gone up the fastest since the Covid-19 pandemic among the major Euro area economies,  and is also expected to record the sharpest rise over the next two years.

Efforts are being made to address this. For 2027, the government has announced a €54 bn savings plan aimed at bringing the deficit down to 5% (as opposed to an estimated 6.4% without these consolidation measures). The scale of this effort is unprecedented outside of post-crisis recovery periods, and with a fragmented National Assembly, the ability of the government to achieve this is in doubt. Not least because the government's own assumption of 1% economic growth in 2027 appears optimistic compared to our own forecast of 0.8%. We expect that the 2027 deficit will be closer to 5.5%.

None of our post-election scenarios point to a stabilization of the public debt level over the short to medium term. Even under a scenario in which France returns to 3% of public deficit by the end of the next presidential term, debt would still rise each year until 2030.

Under a scenario of no primary deficit consolidation, French public debt could surpass Italy’s public debt level by 2030. Stabilizing the public debt will require a sustained and substantial consolidation effort of the primary deficit by around 4% of GDP. The longer the future government waits, the more difficult it will become to stabilize it.

The scale of the adjustment required makes the next President’s economic program particularly consequential. The economic blueprints of the main candidates have not yet been fully detailed, but several candidates have announced their intention to aim for a sharp reduction in the deficit by 2032: below 2.5% of GDP for Le Pen, and down to 2% for both Philippe and fellow centrist Gabriel Attal (Renaissance).

The most detailed economic plans so far have been set out by the RN. Le Pen has set out a roadmap promising “€140 billion in net savings” over five years and committed to bringing the budget deficit below 2.5% by the end of her presidential term, in tandem with a public debt target of 112% of GDP. Furthermore, she has proposed that fiscal discipline would be enshrined in the Constitution through a “golden rule” integrating a hard deficit ceiling set at the debt-stabilising threshold for France.

The RN’s proposals have yet to be furnished with further detail, though, and we expect further changes in the coming weeks. Nevertheless, this project relies on additional GDP growth assumptions of 2.8% over five years, with only a 0.5 pp contractionary drag at the start of the period compared to a no-policy change scenario, an estimate that appears overly optimistic in our view.

In political conversations around managing the public debt, there are fewer topics more controversial than that of pensions. France dedicates one of the largest shares of economic output in the EU to funding public pension expenditure. And what makes matters worse is that the average age of exit from the labour market is lower in France than in most OECD countries.

Consequently, raising the legal retirement age is a pivotal lever for restoring public finances. It serves as a major dividing line among candidates, especially since the 2023 reform raising the statutory retirement age from 62 to 64 was suspended until January 2028.

The RN wishes to return to a statutory retirement age of 62 (60 for long careers), a stance shared by socialist candidate Raphaël Glucksmann (Place Publique). Jean-Luc Mélenchon advocates lowering it to 60. Conversely, Édouard Philippe wants to raise it to 65, while Gabriel Attal proposes abolishing the legal retirement age altogether, replacing it with a system based solely on the contribution period.

The patience of rating agencies and bond investors seems to be wearing thin. Fitch affirmed France’s credit rating at A+ with a stable outlook on in August, but we see a very high probability of a revision to a negative outlook at the next review in 2027.

 We expect Moody’s (Aa3, negative outlook) to downgrade France to A1 during its review on October 23, a move already priced in by the market. [To update once the report is published] For S&P’s review on November 27, 2026, a shift from A+ stable outlook to A+ negative outlook appears highly likely.

Markets have certainly not waited for the formal start of the 2027 presidential campaign to put pressure on French sovereign debt. The 10Y OAT-Bund spread moved above 140bp at the end of September for the first time since 2012. Political risk has become an explicit and material component of daily pricing for OATs.

Ultimately, we believe that French covered bond programs should be able to maintain their ratings in the event of a potential downgrade of France by the three main rating agencies, as long as the overcollateralisation remains consistent with current AAA rating requirements. And French banks’ direct exposure to OATs appears indeed well contained, standing at only circa €115bn, which represents a mere 1.1% of their aggregate total balance sheet.

The 2027 presidential election represents a critical turning point for one of France’s most crucial industries – the Defence Industrial and Technological Base (BITD), which comprises nearly 4,500 companies accounting for more than 220,000 jobs. For investors in French industry, defence is a particularly important sector to watch.

The BITD approaches this crossroads backed by robust industrial and commercial momentum, marked by strong public procurement support which has quadrupled since 2016 to reach €38 billion in 2025. France has established itself as the world’s second-largest arms exporter, with €21.2 billion in export orders in 2025.

However, it faces uncertainty regarding the post-2027 period. Although the 2024–2030 Military Programming Law (LPM) theoretically sets a budget trajectory until 2030, none of the candidates have formalized quantified proposals, with the exception of Bruno Retailleau (The Republicans), who sets an ambition of €100 billion in 2032.

Looking at the bigger geostrategic picture, US disengagement from European defence presents itself as a strategic opportunity to advocate for European preference. However, this dynamic can only benefit the BITD if France remains anchored within NATO’s integrated command. This has been called into question by both the RN and LFI.

The success of the BTID abroad, which accounts for nearly 75% of their revenue, thus depends on the future foreign policy as well as France’s capability and credibility to guarantee the security of its partners. The true risk in this election lies not in budget cuts, but in a shift in foreign policy that would deter international partners.

We do not expect the election to be such a major turning point for the energy sector, except if Jean-Luc Mélenchon is elected, which is unlikely.

The share of nuclear energy in the electricity mix is an increasingly consensual topic. All major candidates share the objective of reducing France’s dependency on fossil fuels and of supporting electricity uses in industry, building and transport. There is a shared view among French political parties that this would not only support French consumers’ purchasing power in the short run but also foster the French economy’s competitiveness in the medium to long run.

Dividing lines do exist, but they revolve more around the organization of the electricity sector, the respective shares of nuclear and renewable energy sources and the levels of electricity bills.

France’s 2027 presidential election comes at a critical juncture for the country’s public finances. Rising debt-servicing costs will make fiscal consolidation increasingly difficult, while the next government’s ability to address the problem will depend on both its political room for manoeuvre and the credibility of its economic program.

From the point of view of an investor looking to assess the relevant sovereign debt risk for their portfolio, what will matter for the market during the presidential campaign is the direction of the medium-term fiscal regime.

Will a broad political consensus emerge around the need to accelerate fiscal consolidation, regardless of who leads in the polls?

The key issue is not necessarily political uncertainty, but whether the election cycle helps restore confidence in France’s fiscal trajectory at a time when the global bond environment remains far less forgiving than in the pre-pandemic period.

Political choices on foreign policy will influence the prospects of France’s defence industry, while the broad consensus on nuclear energy suggests greater continuity in the energy sector. For investors, the election will therefore have different consequences across asset classes and industries, with the credibility of France’s overall economic and fiscal strategy remaining the central consideration.