Despite rising yields and political gridlock, France not facing a debt crisis: analysts
French borrowing costs and bond yield spreads hit euro zone crisis levels, but analysts say it is not a debt crisis.
Quick Look
Despite French 10-year bond yield spreads with Germany hitting euro zone crisis levels, analysts say France faces no debt crisis, though political instability complicates deficit reduction.
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Why It Matters
French borrowing costs surged, pushing the 10-year bond yield spread with Germany to levels unseen since the euro zone crisis.
Despite the recent surge in French borrowing costs that pushed the country’s 10-year bond yield spread with Germany to a level unseen since the euro zone crisis, analysts are urging calm, saying France is not facing a debt crisis but cautioning that future uncertainties remain.
“The short answer is no, this is not a debt crisis,” said Stephane Colliac, senior economist at BNP Paribas.
France’s effective interest rate is lower than the rising market yields, at slightly above 2 per cent, around the same level as that of the Netherlands, Colliac said, adding that France has faced the same inflation as most advanced economies due to conflicts in the Middle East and higher yields.
French politicians have been worrying about rising debt and a budget deficit, but cutting the deficit has proven difficult in a National Assembly where no political group wields a majority. Since late 2024, discussions over the national budget have led to the collapse of two governments.
Open Questions
- Will the National Assembly pass a national budget?
- How high will French borrowing costs rise?
