France’s Budget Crisis Deepens as Debt Costs Hit 15-Year Highs

France is bracing for significant market turbulence and potential governmental upheaval as borrowing costs surge to levels not seen since the global financial crisis. The yield on the nation’s 10-year government bonds, known as OATs, breached the 4.5% threshold this week for the first time since 2008, holding steady at approximately 4.53%. This spike has widened the gap between French and German debt yields to over one percentage point, a spread last witnessed during the peak of the eurozone sovereign debt crisis in 2012.

The disparity is particularly stark when compared to other southern European economies; investors are currently demanding higher compensation for lending to France than to Italy or Greece, traditional markers of fiscal risk within the bloc. Across the G7, France’s borrowing costs rank among the highest, with its 30-year bond yield reaching 5.23%, surpassing that of Japan and Canada, and trailing only the UK and the US.

Compounding the financial anxiety are projections from the French finance ministry, which indicated that national debt will climb to a record 119.3% of gross domestic product in 2026, with forecasts suggesting a rise to 121.7% by 2027. These figures emerge against a backdrop of chronic political gridlock following the snap election of July 2024, which failed to produce a parliamentary majority.

The National Assembly, characterized by a fractured landscape including the far-right National Rally, the left-wing New Popular Front, and Prime Minister Lecornu’s center-right coalition, has repeatedly clashed over fiscal policy. The political turmoil has already resulted in two no-confidence votes that ousted previous administrations in December 2024 and September 2025. Lecornu narrowly avoided a similar fate this year by utilizing a constitutional clause to force through the 2026 budget in February.

Mujtaba Rahman, managing director for Europe at Eurasia Group, warned that the draft budget for 2027 poses an existential threat to the current government. He noted that while there is a broad desire to avert a crisis before the presidential election scheduled for next spring, measures such as partial pension freezes are likely to face fierce opposition from rival parliamentary factions. Lecornu appears determined to conclude his premiership by enforcing a budget aimed at stabilizing state finances, potentially through further use of special constitutional powers if a mid-December deadline is approached without agreement.

Analysts at ING highlighted that the government’s objective to reduce the deficit from an estimated 5.4% this year to 5% will encounter substantial political resistance. Furthermore, they argued that market conditions are unfavorable for French bonds. With the focus shifting toward next year’s presidential race, a result from the political extremes could trigger another period of legislative uncertainty and difficult government formation.

Chris Attfield, a European rates strategist at HSBC, observed that the widening spread between French and German yields was more pronounced than France’s debt-to-GDP ratio would typically suggest. He cautioned that while the European Central Bank might intervene if market movements became disorderly, the bank remains focused on inflationary pressures. Additionally, with non-domestic ownership of OATs exceeding 50%, Attfield raised concerns about the lack of “stickiness” among foreign investors and questioned who would absorb the risk at higher prices.

In contrast to the cautious market outlook, Lars Machenil, chief financial officer at BNP Paribas, expressed optimism during an appearance on CNBC. He emphasized the importance of crafting a sensible budget and noted a visible willingness among lawmakers to reach an agreement, suggesting that progress on timing and content is moving in a positive direction despite the inherent challenges.