Doubts about France's finances spread into regional panic, causing the euro to plummet to a 17-month low during Asian trading on the 5th. Chris Weston, head of research at Pepperstone, warned investors, "Don't stand in front of the train." The euro will not rebound quickly. This market trend is a continuation of recent fiscal issues and "may have signs of contagion effects."
Reuters reported that concerns about France's debt level and political deadlock before next year's election have caused the euro to close down for four consecutive weeks. It fell 0.8% to $1.161 per euro on the 5th, the lowest since May 2025.
Brent Donnelly, director of foreign exchange trading at the analysis company Spectra Markets, said that with the election in April next year approaching, many people had expected that trading related to French political issues would intensify this winter. However, this wave of trading has erupted. "It is currently impossible to confirm what measures will solve the current situation, because any budget commitments made by the French government now lack credibility under the upcoming regime change."
The turbulence in the bond market and the weakness of the euro have raised concerns that France's difficulties may spread to the entire euro zone, repeating the European debt crisis 15 years ago, and forcing the European Central Bank to help France support its debt.
However, some analysts believe that it is too early to judge whether France's debt woes will evolve into a "European Debt Crisis 2.0" situation. Ninghui Liu, head of Asia-Pacific investment strategy and research at State Street, said France's fiscal situation was becoming increasingly unstable, but it was not until last week that the market began to react. "At the moment I think this is more of a national problem than a euro zone crisis."
He added that if the situation worsens, other members of the euro zone will not stand idly by and Germany will definitely step in because it wants to ensure that the EU does not collapse.
Global bond markets fell as investors worried that soaring oil prices would fuel inflation, triggering global borrowing costs to hit a multi-decade high and pummeling French debt. France's 10-year government bond yield climbed to 4.8% last Wednesday, the highest level since 2008. Soaring borrowing costs caused the spread between French 10-year government bonds and German Bunds to widen 0.34 percentage points last week to 1.4%, the largest weekly increase in 17 years.
France's budget this year is based on an expected gross domestic product (GDP) growth of 1% and a fiscal deficit of 5% of GDP. However, the government last month halved its growth forecast and admitted the deficit would be close to 5.4% of GDP. The continued rise in borrowing costs makes the situation even more serious. The government expects debt service interest payments to rise from 79 billion euros this year to 91 billion euros next year.
