Goldman Sachs: European Election Cycles Push Up Deficits, France's 2027 Fiscal Gap Expected to Reach 5.4% of GDP
nashnova research
Goldman Sachs raised its French 2027 deficit forecast to 5.4% of GDP, 0.4 percentage points above the government's own target; France's 10-year yield has breached 5% and the Franco-German spread hit its widest since the 2011 eurozone debt crisis — election cycles are systematically inflating Europe's deficit risk.
Where does 5.4% sit versus the government's own target?
Goldman economists forecast France's 2027 deficit at 5.4% of GDP. The French government's target is 5.0% — a gap of 0.4 percentage points.
This means → even assuming some form of budget eventually passes, Goldman believes France cannot hit its own number.
Goldman calls 5.4% a baseline scenario only. The actual deficit could overshoot further — election cycles pose "net upside risk to deficits."
What is the bond market already pricing in?
France's 10-year government bond yield has broken 5%. The Franco-German 10-year spread widened to 178 basis points — the highest since the 2011 eurozone debt crisis.
In plain terms = the risk premium the market demands to lend to France is back at last-crisis levels.
Goldman's rates strategists calculate that under 1% real growth, 2% inflation, and 4% borrowing costs, France needs a primary surplus of roughly 1% of GDP just to stabilize debt — and France currently runs a primary deficit. If funding costs move toward today's yield, that requirement rises to about 2%.
Is the eurozone's overall deficit expanding or shrinking?
The combined deficit of Germany, France, Italy, and Spain is projected to rise 0.5 percentage points this year to 4.0% of GDP, then widen to 4.2% by 2027.
Germany is the main driver: its deficit is forecast to climb from 3.0% last year to 4.0% this year and 4.6% next year, fueled by defense spending and infrastructure investment.
Interest costs alone add roughly 0.2 percentage points of deficit each year. This means → even with zero new spending, debt-servicing alone pushes the deficit higher.
All that spending — how much growth does it buy?
Goldman estimates the fiscal expansion lifts eurozone 2026 GDP growth by only about 0.1 percentage points.
In plain terms = deficits near 4% of GDP, growth boost close to zero — the money goes out the door, but GDP barely moves.
Fiscal policy turns neutral in 2027 and shifts to outright tightening from 2028. Goldman sees this outlook as unappealing to voters, which only strengthens governments' incentive to spend more before elections.
Will France's presidential election change the fiscal trajectory?
France holds a presidential election next year. IFOP's latest poll puts Le Pen at 34%–38% in the first round; she is projected to face Mélenchon in the runoff and win 68% to 32%.
Goldman's view: no matter who wins, the political space for fiscal consolidation is extremely limited. The National Assembly last week already stripped several key spending cuts from the 2027 budget.
This reflects a deeper pattern: the election calendar only pushes deficit risk in one direction. Italy has cumulatively raised its 2027 and 2028 deficit targets, confirming the same logic.
What does this mean for eurozone bond investors?
Goldman argues that the structural forces of fiscal integration that kept eurozone spreads tight in recent years are loosening.
This means → holders of French and Italian government bonds need to reassess the old assumption that eurozone spreads will automatically converge.
Put simply = markets used to believe Europe would backstop together and spreads would stay narrow. Now each country is running its own election, spending its own money — and that belief is being shaken.
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