Paris, France – Once the perceived bastion of fiscal stability within the Eurozone, France finds itself grappling with a burgeoning debt crisis and political instability that has seen five prime ministers resign in just two years. As borrowing costs soar and credit ratings falter, an unlikely narrative is emerging: France may have lessons to learn from Italy, a nation long stereotyped as the bloc's fiscal problem child. Rome's recent trajectory of deficit reduction and newfound market credibility offers a stark contrast to Paris's deepening woes, prompting a re-evaluation of long-held assumptions about European economic leadership.
France's Deepening Fiscal Malaise
The French Republic is currently navigating a treacherous financial landscape. As of September 2025, public debt has ballooned to €3,345 billion, representing 114% of its Gross Domestic Product (GDP)—the highest in the Eurozone. The nation's budget deficit stood at 5.8% of GDP in 2024 and is projected to be 5.4% in 2025, significantly exceeding the European Union's mandated 3% limit. This persistent breach has triggered the EU's "excessive deficit procedure," placing France under increased scrutiny from Brussels.
Adding to the economic strain is profound political instability. The rapid succession of prime ministers underscores deep governmental dysfunction, hindering any sustained effort at fiscal consolidation. Previous attempts at austerity, such as proposed pension reforms or spending cuts, have frequently led to widespread protests and political deadlock. This environment of uncertainty has eroded investor confidence, manifesting in rising borrowing costs; the 10-year French government bond rate has climbed, with its spread over German Bunds reaching a peak of 0.87 percentage points since 2012. Analysts warn that without a clear path to fiscal stability, France risks further economic isolation and a prolonged period of stagnant growth.
Italy's Unexpected Ascent to Fiscal Credibility
Conversely, Italy, despite its historically higher public debt (around 140% of GDP), has achieved a remarkable turnaround in its fiscal standing. Long viewed with skepticism by financial markets, Italy has managed to reduce its public deficit more rapidly than France, with its primary balance becoming positive in 2025. This shift has not gone unnoticed by international bodies; Fitch Ratings recently upgraded Italy's debt rating, while simultaneously downgrading France's, reflecting "increased confidence in Italy's fiscal trajectory". This divergence marks a significant repositioning in the perception of fiscal responsibility within the Eurozone.
Investor sentiment has mirrored these rating adjustments. The once substantial gap between Italian and French borrowing costs has narrowed dramatically, with the spread on five-year bonds even disappearing in mid-2023. This suggests that markets now perceive Italy as fiscally more prudent than France. This newfound credibility is attributed to a combination of national discipline, targeted reforms, and strategic engagement with European support mechanisms.
The Blueprint: What Italy Did Right
Italy's path to enhanced fiscal credibility has been multi-faceted, encompassing both immediate austerity measures and deeper structural reforms. Under the leadership of Prime Minister Giorgia Meloni, the government adopted a resolutely prudent stance. Current expenditures were contained, notably in the public sector and social transfers, and generous support measures introduced during the COVID-19 pandemic and energy crisis were withdrawn more swiftly than in many other European nations. Italy also implemented targeted tax increases and enhanced efforts to combat tax evasion, further bolstering its revenue stream.
Beyond direct fiscal adjustments, Italy embarked on significant structural reforms aimed at improving its long-term economic efficiency. Between 2011 and 2017, key policy packages liberalized the services sector, incentivized business innovation, and improved the efficiency of civil courts. These reforms are estimated to have boosted Italy's GDP by 2.5% to 6% by 2019, with further long-term increases projected. The country has also focused on addressing bottlenecks in product and labor markets, aiming to strengthen competition and increase labor market flexibility.
Moreover, Italy has adeptly leveraged European Union mechanisms. As the main beneficiary of EU recovery funds, Italy has been subject to strict EU conditions for deficit reduction and reform implementation. These conditions have provided external impetus for crucial changes, including specific commitments to reduce pending legal cases and improve public administration efficiency by 2028. This blend of internal political will and external pressure has proven instrumental in Italy's fiscal recalibration.
Can the French Republic Adapt? Challenges and Prospects
The question for France is whether it can adapt Italy's lessons to its unique political and social context. While both nations face shared challenges like high public debt and demographic pressures, their economic structures and political cultures differ significantly. France's challenges are notably rooted in political instability and unsustainable fiscal policies, while Italy's long-standing issues were more structural, which have now been mitigated by disciplined reforms.
France's public spending, particularly on social protection, welfare, and local government, is among the highest in Europe and has historically outpaced economic growth. Implementing the kind of spending cuts and structural adjustments seen in Italy would likely face considerable social and political resistance in France, where social equity and extensive public services are deeply ingrained values. The difficulty in passing recent pension reforms, for example, illustrates the political traps inherent in such endeavors.
However, Italy's experience demonstrates that even a country with deeply entrenched fiscal problems can achieve stability through consistent policy and strong political will. The "Meloni playbook"—a pragmatic approach to fiscal management that seeks to reassure markets without alienating the electorate—offers a potential template for French leaders. This involves a delicate balancing act of targeted tax adjustments, spending rationalization, and engagement with EU frameworks, even if some measures must be watered down to achieve consensus.
Conclusion
The reversal of roles between France and Italy in the realm of fiscal credibility presents a compelling paradox for Europe. While France grapples with political paralysis and ballooning deficits, Italy has demonstrated that a credible fiscal trajectory, even with high debt, can earn the recognition of markets and rating agencies. Italy's success stems from a combination of national discipline, the strategic use of EU recovery funds, and a commitment to structural reforms.
For France, the challenge is formidable. Its political system appears less conducive to the decisive, sustained reforms that have benefited Italy. Yet, Italy's journey offers more than just a cautionary tale; it provides a tangible example that fiscal credibility is not immutable and can be rebuilt through consistent policy and strategic adjustments. Whether France can overcome its internal political gridlock to embrace a similar path of discipline and reform remains to be seen, but the stakes for its economic future, and indeed for the stability of the Eurozone, are exceptionally high.
