France is becoming the ‘poster child' of sovereign debt problems as government borrowing costs hit near 2008 highs

• French 10-year bond yields hit 4.13% last week, the highest since 2008, with France now borrowing at higher rates than Italy—a reversal that would have been 'unthinkable' recently
• France's gross government debt is projected to exceed 120% of GDP by 2027 and remain above that level through 2030, far from the EU's 60% target and 2029 deadline to bring debt under control
• The upcoming 2027 budget debate and presidential election are key risk events, with analysts viewing French bonds as 'pre-stressed' and warning of potential 'bond market revolt' if fiscal consolidation fails

France Faces Sovereign Debt Crisis as Borrowing Costs Soar

Key Developments

France's sovereign debt situation is deteriorating rapidly, with 10-year government bond yields hitting 4.13% last week—the highest level since 2008. The EU's second-largest economy is becoming a "poster child" for developed market fiscal problems as political instability and mounting debt concerns shake investor confidence.

Critical Fiscal Metrics

• Deficit: 5.1% of GDP (2025), well above the EU's 3% limit
• Debt-to-GDP ratio: Surpassed 115% in 2025
• IMF projections: Debt reaching 118.5% in 2026, exceeding 120% through 2030
• Economic growth: Contracted 0.2% Q1 2026, stagnant in Q2

France has repeatedly violated EU fiscal rules requiring deficits below 3% and debt under 60% of GDP. The European Commission has mandated France reduce its deficit by 2029, but progress remains elusive.

Political Turmoil

Five prime ministers have cycled through office in two years. Current PM Sebastien Lecornu resigned just 27 days into his tenure before being reappointed. The fragmented National Assembly has triggered no-confidence votes and government collapses, particularly over budget negotiations.

The 2027 presidential election adds uncertainty, with far-right candidate Marine Le Pen—who claims to support spending cuts—currently leading polls to succeed Emmanuel Macron.

Market Implications

French bonds (OATs) now trade cheaper than Italian equivalents, a historic reversal. Analysts at Natixis describe OATs as "pre-stressed," with spreads to German Bunds at 75-80 basis points. Experts warn of potential "bond market revolt" if fiscal consolidation doesn't materialize, with heightened volatility expected through Q1 2027 during budget debates and election campaigns.