France's Debt Spiral: Tax Hikes Mask A Looming Crisis
Submitted by Thomas Kolbe
On both sides of the Franco-German border, the same problem persists: overburdened and reform-averse politicians struggle against a rapidly accelerating debt spiral. Their preferred tool: higher levies.
Last week, France’s Finance Minister Roland Lescure reported a revision of the projected budget deficit for the current year.
Initial estimates for 2026 had suggested a deficit well above five percent. Yet numerous fiscal measures brought last year’s deficit down to 5.1%. For 2026, the Finance Ministry expects it to stabilize at around five percent—provided the ongoing energy crisis and the war in Iran do not cast a lasting shadow over the year, and the economy does not abruptly collapse.
With total public debt at roughly 115% of GDP, France cannot possibly meet the Maastricht criteria under this level of new borrowing.
Do restrictive fiscal rules, such as the increasingly fading Maastricht criteria, even matter anymore in the Eurozone? It’s a rhetorical question: public spending dynamics are no longer controllable. One could also say: EU nations have entered a phase of fiscal fatalism.
After a 4% increase in government spending in 2024, outlays rose again last year, this time by 2.5%. The state apparatus continues to expand, regardless of the dramatic debt levels, pushing the public-sector share of GDP to 57%.
Similar to Germany, this figure does not account for the bureaucratic overhead borne by the private sector on behalf of the increasingly feudal state. Hundreds of thousands of private-sector jobs exist solely to fulfill government reporting and compliance obligations.
Massive Tax Hikes
Meanwhile, the French government remains stuck in its involuntary role as a reform-incapable instrument of the crumbling status quo. Parliament’s majority arithmetic leaves it paralyzed. A reform process to shrink the welfare state, reduce the massive bureaucracy, and achieve sustainable budget management is now completely out of reach for Prime Minister Sébastien Lecornu’s minority government.
Every administration supported by President Emmanuel Macron functions as a placeholder, interchangeable and powerless in a parliamentary arithmetic deadlock. Macron, facing dramatically poor approval ratings as a sort of “president without a people,” knows the fragility of France’s public finances and can at least rely on one thing: a broad political alliance capable of delivering temporary relief through tax hikes.
In Paris, as in much of the EU, policymakers are staunch etatists—staunchly loyal to the state and simultaneously hungry for power—making a large government apparatus serve their interests.
Over the past two years, France has cranked up the tax screws: a minimum rate for top incomes above €250,000, an increase in property wealth taxes, and a rise in corporate taxes for larger firms, yielding up to €6 billion in additional annual revenue.
New levies on higher dividend payouts and large corporate stock buybacks have been introduced. A Tobin-style financial transaction tax is planned to hit wealthy shareholders. Energy and environmental levies have also risen. As with tobacco and alcohol, the message is clear: “We tax luxury and the rich.”
This creates the impression of socially just taxation, while distracting from the fundamental problem: the expanding state, a European disease driving the continent into turbulence.
Where the Journey Leads
France illustrates both the mechanics and potential timeline of the emerging national debt crisis. Through intensive public-relations work and the backing of state-aligned media, politicians cultivate the impression of massive social imbalances. Punchline: societal decay and poverty, up to the misery of public finances, are the undeniable result of capitalist plunder.
The only functioning corrective to this systemic injustice comes from the benevolent, balancing state, stepping in to deliver fiscal transfers and enforce a form of justice.
In the sticky rhetoric of “justice,” the government conceals its complete failure—whether in border policy, over-bureaucratization, or the naive belief in a centrally planned economy. The result is a lifeless economy, which in France fares no better than in Germany. Only in energy has the importance of nuclear power been recognized—a wise choice, securing significant advantages for French industry.
Fiscal policy in Paris and Berlin now moves hand in hand toward the fiscal inferno. Berlin delayed necessary action by two years, but 2026 promises to be a year of major shocks. Chancellor Friedrich Merz’s government is expected to raise both inheritance tax and the top income tax rate.
Options on the tax roulette wheel include a two-percentage-point hike in VAT and the end of spousal income splitting—measures particularly cherished by the political left in its ongoing attack on the remnants of the bourgeois family sphere.
The CDU’s participation in this scheme, leveling itself with other socialist parties in the Bundestag, reveals the intellectual and ethical erosion of a party led to the threshold of socialism by Angela Merkel and now finally pushed over by Friedrich Merz.
From general political-ideological mismanagement emerges a crisis-management strategy. Germany and France offer clues about fiscal trajectories in the coming years.
In short: the state will feed off the shrinking economic substance, masking its failures with higher levies while postponing necessary reforms.
This has immediate consequences for capital markets. If the sell-off of European sovereign bonds continues, the European Central Bank will have to intervene to prevent the public debt Ponzi scheme from collapsing.
This trend is highly inflationary and accelerates the process of social and economic erosion. Those capable of cutting the Gordian knot of Europe’s complex fiscal entanglement remain, for now, on the sidelines.
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About the author: Thomas Kolbe is a German graduate economist. For over 25 years, he has worked as a journalist and media producer for clients from various industries and business associations. As a publicist, he focuses on economic processes and observes geopolitical events from the perspective of the capital markets. His publications follow a philosophy that focuses on the individual and their right to self-determination