IMAGE: Clive Mason/GettyImages
For decades the euro area had a familiar problem child. Italy—burdened with a public debt exceeding 130% of GDP, sluggish growth and revolving-door governments—was the perennial source of market jitters. France, by contrast, was the bloc’s second anchor after Germany: pro-European, stable and fiscally more reliable. Yet in 2025 those roles have begun to invert.
The shift came into sharp relief this September, when Fitch delivered Italy’s first credit-rating upgrade in four years, days after cutting France’s for the second time in a week. Investors, once wary of Rome, now demand almost the same yield to hold French bonds. In the eyes of markets, Paris is starting to look like Rome.
Short-term turbulence is obvious. France has churned through five prime ministers in less than two years, after a snap election left President Emmanuel Macron with a hung parliament. Budget targets have been missed and there is little sign of a credible path back towards the EU’s 3% deficit ceiling. Italy meanwhile enjoys an unusual spell of stability under Giorgia Meloni, whose government has already lasted three years—long by Italian standards—and is gradually narrowing the deficit.
But the deeper story has been unfolding for decades. After the euro crisis of the early 2010s, Italy suffered a string of downgrades as its debt climbed and growth lagged. France also lost its triple-A halo but stabilised in the mid-2010s, especially after Mr Macron’s election in 2017. His reformist zeal and pro-business agenda bought Paris breathing room. The pandemic undid much of that. Both governments spent freely to protect households and firms. But while Italy has since clawed back a primary surplus—the balance before interest payments—France has been stuck in fiscal laxity.
Public spending in France remains the highest among advanced economies, at more than 55% of GDP. Social transfers alone absorb nearly a third of output. That demands a heavy tax burden, which surpasses 40% of GDP. Italy, long notorious for tax evasion, has lately improved collection through digitisation and tighter monitoring. France, by contrast, cut business levies in the hope of spurring growth. The outcome: sluggish consolidation and ballooning deficits.
The debt dynamic is sobering. Italy still carries a bigger stock, over 135% of GDP, but the gap is narrowing. France’s debt burden, now above €3trn, is set to climb fast as higher interest rates bite. Servicing costs are projected by the state auditor to triple this decade, topping €100bn a year by 2029.
Markets have noticed. In past crises investors treated France as a “core” sovereign, closer to Germany than to Italy or Spain. Now the spread has disappeared: ten-year French and Italian bonds yield the same. Ratings agencies, once harsher on Italy, are rebalancing their verdicts.
The irony is rich. France, famed for stable governments and strong presidencies, now suffers Italian-style gridlock. Mr Macron’s centrist coalition cannot push through credible budget reforms; opposition parties clamour for more spending or higher taxes. Italy, long the byword for chaos, suddenly looks predictable. Ms Meloni has proved more pragmatic than feared, nudging Italy back under the EU’s deficit limit by 2026.
For all this, France still retains advantages. Its economy is larger—over $3trn compared with Italy’s $2.3trn—and its demographics are less grim. Growth, while anaemic, has generally outpaced Italy’s. Paris still enjoys greater influence in Brussels, NATO and beyond. But fiscal indiscipline chips away at those cushions. Bond markets are unforgiving once confidence turns.
In Italy, the schadenfreude is palpable. Right-wing politicians point to France’s revolving governments and swelling deficits as proof that “fiscal dumping” accusations from Paris were hollow. French officials meanwhile fear that market doubts could spiral if political paralysis persists.
The euro area has seen this movie before. A decade ago it was Italy that risked dragging the bloc into turmoil. Now France, by clinging to high spending and failing to rebuild consensus around fiscal repair, is edging into the spotlight. If today’s “new Italy” cannot convince investors of discipline, tomorrow’s crisis epicentre may lie not in Rome but in Paris. ■
