French PM Lecornu warns interest rate hikes will add €10B to debt costs

France is staring down a fiscal squeeze that would make even the most seasoned budget hawks wince. Prime Minister Sébastien Lecornu has warned that rising interest rates will pile an additional €10 billion onto the country’s debt servicing costs, a sum large enough to fund entire government ministries.

In a letter to his cabinet dated September 15, 2026, Lecornu instructed ministers to hold non-defense state spending at 2026 levels when drafting the 2027 budget. The message was blunt: every extra euro going to bondholders is one euro less for schools, hospitals, and public services.

The numbers behind the pain

France’s benchmark 10-year OAT yields have climbed to 4.5%, a peak not reached since 2008.

The country’s total public debt now sits at roughly €3.5 trillion, or about 117% of GDP. Annual interest payments alone are projected to hit €65 billion, a figure that already eclipses what France spends on defense or education individually.

And that was before the additional €10 billion Lecornu is now flagging. If realized, total debt servicing costs would approach €75 billion annually, making it one of the single largest line items in the French budget.

What’s driving yields higher

The surge in French borrowing costs stems from a toxic cocktail of factors that have been building throughout 2026. Political instability has been a persistent theme, with coalition dynamics making it difficult for the government to project fiscal credibility to bond markets.

Credit rating downgrades have compounded the problem. When rating agencies start questioning a sovereign borrower’s trajectory, investors demand higher yields as compensation for perceived risk.

Lecornu’s letter made the connection explicit. He stressed that rising rates directly cannibalize the government’s ability to fund public policy.

Austerity by another name

The instruction to freeze non-defense spending at current levels is, in practice, a real-terms cut. With inflation still present in the French economy, holding nominal spending flat means programs will have less purchasing power in 2027 than they did in 2026.

Defense spending appears to be the one area shielded from the freeze, which means the adjustment burden falls entirely on civilian programs.

Earlier in 2026, Lecornu had already sought billions in budget savings to offset rising borrowing expenses and geopolitical risks. The September letter suggests those earlier efforts were insufficient, or that conditions have deteriorated faster than anticipated.

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