Opposite neighbors
France sinks into debt swamp, from which Spain works out
Von Max Borowski
21.09.2025, 07:39 a.m.
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With the downgrading of France’s credit rating, the rating agency Fitch made headlines. There was less attention that almost simultaneously the former crisis state of Spain was classified by the agency S&P with the same grade. The development of the two neighboring countries could hardly be more opposite.
It should only be a snapshot: According to the recent decisions of the great rating agencies, Spain and France are on par. France was just awarded the grade A+ from Fitch, S&P rated Spain’s creditworthiness almost simultaneously with the same rating. However, the two neighboring countries move to opposite directions: Spain, one decade ago in the euro crisis, one of the problem children in Europe, has received its government finances under control and continuously dismisses its debts. France’s debt ratio, on the other hand, increases unstoppable – with dark prospects for the coming years.
In 2008 a gigantic real estate bubble burst in Spain. The economy fell into years of deep crisis. Unemployment rose to almost 27 percent by 2012. The banking sector and finally the Spanish state itself had to be saved by the euro group with a 100 billion euro aid package. The state’s debt load rose to more than 100 percent in the course of the crisis of less than 40 percent of economic output. The international rating agencies only rated Spain one level above the so-called “junk” classification.
While Spain and other countries trimmed the so -called periphery, France remained stable as part of the core of the euro zone. The French debts also rose from over 60 to just under 100 percent during these years, albeit less suddenly. However, this did not worry about the financial market or the rating agencies, which France’s creditworthiness did not evaluate as badly even at the height of the euro crisis as now.
At that time, the development of the two neighboring countries began to turn back. From 2012, the Spanish government began with profound reforms that still have an impact on this day. In order to consolidate the budget in the long term, taxes were increased and expenses were reduced with sometimes drastic measures. Not only social benefits were limited, but also the salaries of government officials have been sensitively shortened. The labor market was flexible, the tariff law restricted.
The financial market goes one step further than the agencies
To date, the consequences of the crisis in Spain have not yet been completely overcome. Unemployment has dropped greatly, but still the highest in the euro zone with more than 10 percent. But the economy is growing constantly – this year is expected to be 2.6 percent more than three times as fast as France. Spain’s debt rate is still high with around 100 percent of the economic output. However, the budget deficit is significantly below the nominal economic growth (i.e. including inflation), so that the debt rate continuously and probably continues to decrease in the coming years.
France, on the other hand, continues to push up the urgently needed consolidation of the budget. The debt rate is already 115 percent of economic output and the budget deficit – the highest of the EU – 5.8 percent. Even the austerity programs presented by the last two governments provided for the increase in debt only slow down in the coming years. Since a majority of the extreme right and left parties block the parliament, no significant austerity measures are enforceable. The debt burden is likely to increase to 130 percent of economic output in a few years.
This does not mean that France is right over a debt crisis. But the consequences are already noticeable. In the coming year, debt service is likely to become the largest expenditure post in the French government. Because the debts not only become more, but also more expensive. The rating agencies still see France and Spain on the go. Investors on the financial market are already one step further: the yields of French government bonds have recently increased over the Spanish debt title. This means that creditor now has more confidence in Spain and desire from France higher interest rates.
