For decades, the international financial system has been based on certain statistical assumptions taken to be immutable: government bonds from the major Western democracies are the safe haven par excellence; the dollar is the global reserve currency; and Japanese savings are an endless, low-cost source of liquidity. Yet the macroeconomic picture in mid-2026 reveals a radically different landscape.

American (debt) exceptionalism

To understand the trajectory of global debt, we need to start at the epicentre of the system. The United States of America has surpassed the psychological threshold of 39,000 billion dollars in federal public debt: a figure that amounts to over 120,000 dollars on the shoulders of every single citizen.

For decades, Washington has been able to ignore the laws of gravity governing fiscal discipline thanks to what economists call the Triffin dilemma: for global trade to function, the US must constantly issue dollars, effectively exporting its debt in the form of Treasury bonds, which are purchased by central banks and institutional funds around the world. But by 2026, this balance is showing deep cracks.

The macroeconomic data for the first half of the financial year reveal an unsustainable deficit trajectory: against revenue of 2,500 billion dollars, expenditure exceeded 3,600 billion, resulting in a half-yearly deficit of 1,100 billion dollars. The direct consequence, exacerbated by a context of structurally high interest rates, is the explosion in interest payments, which are set to exceed the $1,000 billion per year mark by 2026. Today, the US government spends more on servicing its debt than on the entire defence budget or on its major social programmes.

Despite the political proclamations of the Trump administration and the narrative surrounding the DOGE’s (Department of Government Efficiency) waste-cutting measures, projections from the Congressional Budget Office (CBO) confirm that the items that really drive the federal budget (Social Security, Medicare, defence spending and interest payments) are politically untouchable. Indeed, the real danger lies in the so-called unfunded liabilities: the commitments to social security and healthcare spending that have already been approved but lack future fiscal coverage, estimated by the programmes’ trustees to fall within a staggering range of between 60,000 and 80,000 billion dollars.

With the gradual phasing out of internal technical liquidity buffers, such as the reverse repo market – which between 2022 and 2023 had absorbed excess issuance by draining over 2,000 billion dollars – the US bond market is now exposed and hypersensitive. Treasury auctions are struggling to find buyers at previous price levels, pushing the yield on the 10-year bond close to 4.5 per cent and causing the 30-year yield to hit 5 per cent for the first time since 2007. This trend is also fuelled by a structural shift across the Atlantic.

Japan: the ‘banker of the world’s’ harakiri

The reason why US Treasuries command such high yields lies largely in the momentous shift currently taking place in Tokyo. For thirty years, Japan has acted as the world’s de facto banker. With interest rates at zero or below zero at home to combat deflation, Japan’s major institutional investors (pension funds and life insurance companies) have systematically exported capital, accumulating over 1,200 billion dollars in US government bonds and becoming Washington’s largest foreign creditor. This constant buying pressure has artificially propped up the cost of borrowing across the West, keeping mortgage and loan rates low and inflating share price multiples on Wall Street.

In 2026, the system ground to a halt. Under pressure from domestic inflation, the Bank of Japan (BoJ) was forced to raise its key interest rateto 1 per cent, a 31-year high. A seemingly tentative move, but one that raised the spectre of fiscal dominance. With aggregate public debt hovering around 230 per cent of GDP, the central bank cannot afford to raise rates to the estimated neutral level of 2 per cent: every additional fraction of a percentage point would send the government’s budget up in smoke.

The market saw through the BoJ’s bluff, causing the yen to fall; in early July, it hit a record low since 1986, trading at 162.8 against the dollar, thereby nullifying the government’s $70 billion in currency interventions. But the most significant geopolitical development for Europe is the reversal of financial flows: in the first quarter of 2026, Japanese institutional investors recorded their largest net sale of Treasuries since 2022, amounting to 4,670 billion yen (approximately 30 billion dollars).

The currency maths has been turned on its head: today, once the exchange-rate risk has been hedged, a Japanese fund achieves a net return of 2.3 per cent at home, compared with the 1.3 per cent guaranteed by US securities. Capital is flowing back home. Just as the world’s largest marginal buyer of debt closes its doors, the risk premium is rising everywhere, spreading via the financial ‘communicating vessels’ effect from the Pacific to the Atlantic, until it strikes the weak link in the European chain.

France: The End of the Illusion and the Shock to the Eurozone

Whilst the United States exports debt thanks to the dollar and Japan manages its debt through a formidable domestic savings base denominated entirely in its own currency, France finds itself exposed to the perfect storm of high global interest rates without any of these protective shields. Paris does not issue the currency in which it borrows; that currency is instead subject to the stability mandate of the European Central Bank in Frankfurt.

The psychological breaking point came on the morning of 9 September 2025 on the financial screens in London: for the first time since the introduction of the single currency, the French spread exceeded that of Italy, reaching a yield of 3.48 per cent compared with 3.47 per cent for BTPs. That single hundredth of a percentage point marked the end of immunity for Europe’s former ‘model pupil’.

France’s macroeconomic figures for 2026 paint a picture of a country that is structurally out of control. As at 25 June 2026, INSEE confirmed that public debt had reached 3,536 billion euros, a record increase of 75.6 billion in just ninety days: over 800 million euros of new debt per day. The debt-to-GDP ratio has thus risen to 117.5 per cent, whilst interest payments alone for the current year will reach 74.4 billion euros (an increase of 12 billion compared with 2025). France now spends more on servicing its debt than it allocates to national defence and, with yields on ten-year bonds stable at 3.75 per cent, the Bank of France estimates that interest expenditure will approach 100 billion by 2029.

Unlike Italy, which has recorded almost constant primary surpluses over the last fifteen years whilst enduring a difficult transition, France is paying the price for fifty years of rigid structural policies. The state spends 57 per cent of its GDP on public expenditure (compared with 48 per cent in Germany), with a third of national wealth allocated to social protection. At the same time, the tax burden has reached 44 per cent of GDP – the highest in the OECD – leaving no room for manoeuvre on the revenue side whilst failing to stimulate sluggish economic growth, which is forecast to remain at 0.5 per cent for 2026.

Political instability is exacerbating the situation: the freeze and subsequent suspension at the end of 2025 of Macron’s pension reform – with the retirement age being raised back to 62 to appease the public – combined with the succession of government collapses, have completely eroded the country’s fiscal credibility. Following S&P’s downgrade to A+, Moody’s has maintained its negative outlook.

The real dilemma lies in the systemic nature of this crisis. France is the bloc’s second-largest economy. The Greek bailout cost around 290 billion euros; the French economy is more than ten times larger. Financial resources on that scale simply do not exist in the European stability funds. Furthermore, the ECB’s anti-spread shield (the TPI instrument) is, by regulation, subject to compliance with the Union’s budgetary constraints: as Paris is subject to an excessive deficit procedure, the automatic activation of the shield is legally precluded. With over half of its debt held by foreign investors and a growing proportion held by hedge funds, France’s vulnerability is at its highest.

The dilemma of a union caught between giants

An integrated analysis of the US, Japan and France shows that global sovereign debt is no longer an independent variable that central banks can manage indefinitely. If Washington is forced to pay 5 per cent on long-term debt and Tokyo draws on its domestic liquidity to defend itself against fiscal dominance, European interest rates will remain structurally high, regardless of Frankfurt’s decisions.

Against this backdrop, France epitomises Europe’s contradictions. The Union finds itself caught in a geopolitical stranglehold: it needs massive joint investment and European debt to finance the green transition and common defence, yet it rests on the fragile and unreformed foundations of the sovereign debt of its largest Member States. If the Eurozone’s most elegant pillar were to slip into a spiral of market mistrust, there would be no safety net large enough to halt its fall. The markets, as 2026 is demonstrating, do not look at what a country has been in the past; they look exclusively at what it can still afford today.