Germany Warns Europe Over Rising Public Debt

Germany’s Economy Minister Katherina Reiche has urged European countries to maintain sound public finances amid growing concerns over France’s rising debt and government borrowing costs.

Speaking on Thursday, Reiche said public debt remains an important indicator of sound fiscal and financial policy and warned that countries must account for the long-term cost of increased government spending.

“There is no free lunch,” Reiche said, stressing that the principle also applies to public finances.

Her comments came as concerns over France’s public spending have pushed its government borrowing rates to their highest levels since the global financial crisis.

France’s government has proposed a 2027 budget that includes spending cuts and tax increases aimed at reducing the country’s budget deficit. Reiche said French Finance Minister Roland Lescure was working to establish a budget that is constitutional and focused on the future.

Reiche also acknowledged that Germany’s own increased spending on defence and infrastructure would significantly raise public debt and would ultimately need to be repaid.

She said Germany continues to hold top-tier debt ratings from major credit agencies, adding that having more European countries at a similar level would strengthen the region’s financial position.

Meanwhile, Marcel Fratzscher, president of Germany’s DIW economic institute, warned of a potential “vicious circle” in France, where rising debt and political paralysis could weaken confidence in public institutions.

He said weaker confidence could contribute to slower economic growth and a greater risk of recession, potentially causing government deficits and debt to rise further.