The Gallic rooster lost its voice in the debt market
Summary
- France's 10-year government bond yield is nearing 5%, surpassing borrowing costs of Greece and Italy, with the spread against German bonds reaching 130 basis points, the widest since the eurozone debt crisis.
- France's fiscal challenges include a deficit exceeding 5% of GDP for three consecutive years, debt approaching 120% of GDP, and over a trillion dollars in debt maturing by 2030, with plans to borrow 340 billion euros next year.
- The Lecornun government aims for a 5% deficit next year, but fiscal assumptions are seen as optimistic, with potential for the deficit to rise to 6.8% by 2030, while interest expenses are projected to grow by 59% by 2030.
- Political uncertainty, including the upcoming presidential election and proposals from candidates like Marine Le Pen and Jean-Luc Mélenchon, adds to the risk, potentially affecting future credit ratings, although the ECB remains a stabilizing force.
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Automatic translation: Originally published in Finnish 08/10/2026, 05:04 GMT. Give feedback here.
The yield on France's 10-year government bond has been testing the 5% threshold for the first time since 2002. Previously considered stable, France is now paying more for its loans than former crisis countries Greece and Italy.
Spread against Germany, basis points
Source: LSEG
The yield spread between France and Germany on 10-year bonds widened to 150 basis points in early October and is now around 130 basis points. The spread is the widest since the eurozone debt crisis. The sell-off is driven in particular by structural problems spanning decades. The global rise in interest rates, accelerated by the Iran war, has hit heavily indebted countries particularly hard. Among peer countries, only the United States has a larger deficit than France, and France's budget has not been in surplus a single time since 1974, according to the WSJ. France's deficit has exceeded 5% of GDP for three consecutive years, and debt is rising above 120% of GDP. The snap elections in 2024 divided parliament into three camps. Since then, multiple prime ministers have fallen over their austerity proposals.
Source: WSJ
The current government led by Lecornu is targeting a 5% deficit for next year with an adjustment of around 54 billion euros. However, the fiscal watchdog considers the budget's assumptions to be optimistic. According to a study commissioned by the Ministry of Finance, the deficit could rise to 6.8% by 2030.
The situation is further complicated by the fact that France has over a trillion dollars in debt maturing by 2030, and next year the country plans to borrow a record 340 BEUR. At the same time, previous major buyers have taken off their buying pants, as, for example, the Bank of France is now letting its balance sheet shrink. According to the WSJ, interest expenses are expected to grow by 59% by 2030. Bank of France Governor Emmanuel Moulin has warned that debt is tightening a gradually constricting grip around the economy. However, according to recent Reuters news, Moulin has added that France does not yet need the ECB's help in the bond market.
Source: ECB, AI used to create the image
The presidential election in April adds its own share of uncertainty. Marine Le Pen, who leads the polls, promises to lower the retirement age to as low as 60 years, which would come with a high price tag: 9 BEUR per year. Her closest challenger, Jean-Luc Mélenchon, in turn wants to cancel, or as quoted by the WSJ, "throw into the fire" the government bonds held by the central bank.
Political risks will certainly also be reflected in the credit rating agencies' upcoming assessments. However, it must be remembered that France is not Greece during the debt crisis, as the country's bond market is large and the ECB ultimately acts as a backstop for the bond market in the name of financial stability. Nevertheless, the debt dynamics have turned clearly for the worse. According to the OECD, the debt-to-GDP ratio could rise to 200% by 2050. Sustainable fiscal policy is also a condition for the ECB's TPI backstop. Therefore, the yield spread is likely to remain wide at least until the election.
