Euro Slumps to 17-Month Low Amid French and Spanish Political Instability

The euro dropped to its lowest level in 17 months on Friday, driven by mounting political uncertainty in Spain and France that has spooked financial markets. Major banking institutions have issued warnings regarding the sustainability of French fiscal policy, casting doubt on the currency’s near-term outlook.

According to economists at Barclays, while the French government has unveiled a draft framework for its 2027 budget targeting a reduction in the public deficit from 5.4% to 5% of GDP, the nation is unlikely to achieve these fiscal goals even if the legislation is passed in the coming months. The bank noted that French fiscal and political developments are obscuring the broader euro area perspective, with fundamentals remaining weak and no significant inflection point expected before next year’s presidential election.

Strategists at ING echoed these concerns, stating that the proposed budget would not resolve France’s underlying structural fiscal issues. They argued that the deficit would remain too elevated to stabilize the debt-to-GDP ratio, while spending related to an aging population and rising interest payments would continue to climb. Consequently, the next administration will face difficult fiscal choices, yet none of the leading presidential candidates have offered detailed plans outlining specific expenditure cuts, tax modifications, or debt stabilization strategies.