France's government faced another uncomfortable milestone on Thursday as the country's ten-year borrowing rate climbed to 4.94%, its highest level since 2002. The increase, from 4.85% at Wednesday's close, underscores the mounting pressure on public finances just as Prime Minister Sébastien Lecornu prepares to outline the contours of the 2027 budget.
The yield on French government bonds has now posted its largest quarterly jump in nearly four decades, and its sharpest monthly rise since 2022. Investors are increasingly wary of a debt burden that has grown relentlessly under President Emmanuel Macron, with public debt reaching €3.596 trillion, equivalent to 119% of GDP.
A widening gap with Germany
The seriousness of the situation is also visible in the spread between French and German borrowing costs. Germany's ten-year yield stood at 3.61% on Thursday, leaving a gap of about 1.30 percentage points — the widest since 2010. This Franco-German spread, a key gauge of risk perception in the eurozone, has been widening steadily as investors demand a higher premium to hold French debt.
European stock markets opened lower on Thursday, with Paris's CAC 40 falling more than 1.4% by mid-morning, London's FTSE 100 losing 1.8%, and Frankfurt's DAX trading 1.1% down.
Prime Minister Lecornu, who has already pledged €54 billion in savings, acknowledged the gravity of the moment. In a post on X, he wrote: "Energy tensions are pushing rates up in many countries. In France, political uncertainty ahead of the presidential election is adding to that pressure." He added: "Let us not pile instability on top of these difficulties."
Lecornu also warned that higher interest payments mean fewer resources for national priorities. "More interest to pay means fewer resources for the country's priorities. This reality applies to everyone: government, parliament, presidential candidates. Reality is catching up with us," he said.
The government's task is daunting: France has not run a balanced budget since 1973. The country's debt has ballooned over Macron's two terms, and the issue is expected to dominate the campaign ahead of next year's presidential election.
One controversial proposal has come from Jean-Luc Mélenchon, the candidate of La France insoumise, who has suggested cancelling French government bonds held by the European Central Bank to free up money for public spending. The idea was quickly rejected by ECB President Christine Lagarde, who called it a "clear and simple violation" of EU treaties, which prohibit the central bank from financing member states. She warned that if France were to default on its debt, it would face much harsher terms when it returned to the markets — or might not be able to borrow at all.
According to the French finance ministry, the country's debt is held by a diverse group of investors: a quarter by French investors, a quarter by eurozone investors, a quarter by investors outside the currency bloc, and the remaining quarter by the Banque de France as part of the ECB's monetary policy purchases.
The rising borrowing costs come as France also grapples with record public debt and a challenging fiscal outlook. The government's austerity budget has already sparked protests, with lycée demonstrations spreading beyond Paris. Meanwhile, the broader European context remains fragile, as Italy's inflation also rose to a three-year high in September.
For now, the markets are sending a clear signal: France's fiscal trajectory is no longer being taken for granted. The question is whether the government can convince investors — and voters — that it has a credible plan to bring the debt under control.
