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Bad news keeps piling up for the government. France’s ten-year borrowing rate climbed to 4.94% at 10 a.m. on Thursday 1 October, up from 4.85% at Wednesday’s close. French government bonds on the secondary market last yielded a similar rate in 2002, when they reached 4.91%.
More importantly, the borrowing rate has just seen its largest quarterly increase in almost four decades, as well as its sharpest monthly rise since 2022.
This latest rise is a sign of investors’ growing mistrust of French debt, just as the government presents on Thursday the outline of what could become the state budget for 2027. The task looks especially daunting for Prime Minister Sébastien Lecornu, all the more so as France has not had a balanced budget since 1973.
Yet this record surge hardly comes as a surprise. The day before, the prime minister had expressed regret that the warning had gone “almost unnoticed” in the public debate. “Energy tensions are pushing rates up in many countries. In France, political uncertainty ahead of the presidential election is adding to that pressure,” he wrote on X.
“Let us not pile instability on top of these difficulties,” he added.
“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,” said Lecornu, who had already announced his intention to deliver €54 billion in savings.
Beyond this rise, the seriousness of the situation can also be seen in the gap with Germany, whose borrowing rate serves as a benchmark in Europe. On Thursday, Germany’s borrowing rate stood at 3.61%, around 1.30 percentage points lower than the French rate. This gap, known as the Franco-German spread, keeps widening and has now reached its highest level in 14 years.
European stock markets also opened lower on Thursday morning, with the CAC 40 stock index in Paris falling more than 1.4% by 11am, the FTSE 100 in London losing 1.8% and the DAX in Frankfurt trading 1.1% lower at the same time.
€3.596 trillion in debt
The government is under particular pressure, as public debt has reached record levels over President Emmanuel Macron’s two terms, worrying investors and becoming one of the main issues ahead of next year’s presidential election.
Debt now stands at €3.596 trillion, equivalent to 119% of gross domestic product (GDP), suggesting that the country’s weakened public finances are likely to dominate the campaign.
One proposal to tackle the debt issue is proving particularly divisive. The La France insoumise candidate, Jean-Luc Mélenchon, has suggested cancelling French government bonds held by the European Central Bank in order to free up money for public spending, arguing that this would release resources for investment.
The idea was swiftly rejected by Christine Lagarde, president of the European Central Bank, who argues that it would be a “clear and simple violation” of the EU treaties, which forbid a central bank from financing states. She stressed that if France were to freeze its debt today, then when it returned to the markets its creditors could demand onerous terms or even flatly refuse to lend to it.
According to France’s finance ministry, the country’s debt is held by a wide range of investors. A quarter is owned by French investors, a quarter by investors from the eurozone and another quarter by investors based outside the currency bloc. The remaining 25% is held by the Banque de France, as part of purchases made under the European Central Bank’s monetary policy.