French Prime Minister Sébastien Lecornu has warned that rising interest rates will increase the nation's debt servicing costs by €10 billion. This additional burden brings total projected annual interest payments to approximately €75 billion, up from the current estimate of €65 billion.
In a letter to his cabinet dated September 15, 2026, the Prime Minister ordered ministers to cap non-defense spending at 2026 levels for the 2027 budget. This directive effectively functions as a real-terms cut due to ongoing inflation, as the government seeks to manage a total public debt of roughly €3.5 trillion.
The fiscal pressure follows a rise in the benchmark 10-year OAT yields to 4.5%, a level not observed since 2008. This increase is attributed to political instability and credit rating downgrades, which have forced investors to demand higher yields to compensate for perceived sovereign risk.
While civilian programs face budget freezes, defense spending remains exempt from these restrictions. The government previously attempted to secure budget savings earlier in 2026, but the latest measures indicate that economic conditions have deteriorated more rapidly than officials initially anticipated.
