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France's Borrowing Costs Near 5%, Raising Debt Concerns
Confirmed
In Short: France's 10-year OAT yield rose to nearly 4.914%, nearing its highest level in decades, amid rising borrowing costs and political instability.
France's borrowing costs are nearing 5%, the highest level since 2002, as the country faces a combination of rising borrowing costs, political instability, and escalating protests in high schools.
The 10-year OAT yield rose to approximately 4.914%, around 139 basis points higher than a year earlier, according to Eurasiabusinessnews.
Student demonstrations over teacher shortages, overcrowded classrooms, and deteriorating school buildings have spread across the country, increasing pressure on the government.
These protests have transformed the debt debate from a financial-market issue into a wider social and political crisis.
France's public debt is projected to reach 121.7% of GDP in 2027, with public expenditure at about 57% of GDP, among the highest in the advanced world.
The rising borrowing costs are part of a broader trend, with long-term government bond yields across the developed world increasing after decades of declining global borrowing costs.
France has lost economic ground relative to Germany since about 2010, and its expected 2026 primary deficit is among the largest in the euro area, at 2.5% of GDP.
Patrick Munnelly, market strategist at Tickmill Group, noted that France had already been under pressure due to questions over fiscal credibility and political stability.
The euro slid to its lowest level against the dollar in 17 months amid worries about France’s high debt and deficits, which have sent its government bond yields soaring.
Kenneth Rogoff, a professor of economics at Harvard University, said, “France’s position looks unsustainable and the bond markets are saying that, but they’re not screaming it yet.”
The gap between French and German 10-year yields has widened, reaching about 1.5 percentage points, the widest since the 2012 euro debt crisis.
Bank of France Governor Emmanuel Moulin described the situation in bond markets as “complicated” and said France’s economic position is “serious,” although the country is “not in an economic crisis yet.”
What this adds
The rising borrowing costs and political instability are raising concerns about France's fiscal sustainability and its ability to manage its debt.
What's confirmed
- “France had already been under pressure due to questions over fiscal credibility and political stability,” said Patrick Munnelly, market strategist at Tickmill Group.
- (AFP) — The euro slid Monday to its lowest level against the dollar in 17 months amid worries about France’s high debt and deficits, which have sent its government bond yields soaring.
- France’s “rentrée,” or “return,” as the French call the back-to-school and back-to-work season, has been anything but orderly.
- With images of young protesters clashing with police amid clouds of tear gas, the student protests have become the most vivid manifestation of France’s unrest and grievances.
What's still developing
- Debt-service costs are becoming one of the largest items in the French budget.
- But it is the highest monthly reading in Eurostat's table since at least April, and it is moving the wrong way for the European Central Bank, which has already raised rates twice this year, in June and again in September, lifting its deposit rate to 2.5%.
- In France, the national statistics agency, INSEE, put harmonized inflation at 3.4%, up from 2.6% in August.
- The gap between French and German 10-year yields, a measure of how much more investors demand to lend to Paris than to Berlin, touched about 1.5 percentage points at one point Friday, the widest since the 2012 euro debt crisis, the French financial daily L'Agefi and TokenPost reported.
- That has rattled bond investors at a time when interest rates -- and hence borrowing costs -- are rising in developed economies worldwide to combat inflation.
- "Spain now adds another layer of uncertainty," he added.
- EUR/GBP trims part of its intraday decline on Wednesday but remains on the back foot for the ninth consecutive day as concerns over France’s fiscal position weigh on the Euro (EUR).
- France’s fragile fiscal outlook continues to undermine the shared currency as investors question the government’s ability to reduce its budget shortfall.
- The welfare state in France is coming unglued.
- The cost of servicing France’s debt is expected to climb 59% by 2030, according to a recent study commissioned by the French finance ministry.
- Higher yields worsen future interest costs; weaker fiscal arithmetic encourages investors to demand larger risk premiums; and the consolidation needed to stabilise the debt can itself weigh on growth.
- France must grapple with structurally higher long-term interest rates in the context of a very weak fiscal starting point and a longstanding growth problem.