The governor of the Banque de France warns of strangulation by interest rates

It’s not every day that a central banker talks about strangulation. In an interview with the Financial Times published Monday October 5, Emmanuel Moulin, governor of the Bank of France, warns that the country risks being gradually “strangled by interest rates” if it does not straighten out its public finances. The warning comes on the day the euro hits a 17-month low, weighed down by the same French debt.

Interest rate: what the governor of the Banque de France says

The message comes in two parts, according to the interview given to the British daily. First the alert. If nothing is done, the rise in rates will end up gradually strangling the country's accounts. Then the safeguard, since France, insists Emmanuel Moulin, is not the Greece of the euro zone crisis. He still considers recent movements on sovereign debt “serious and worrying”.

For the governor, the solution goes through Parliament. A budget voted on in Paris, with a falling deficit, would, according to him, be enough to reassure the markets.

French debt: a 10-year rate close to 5%

The numbers give weight to the warning. The rate at which France borrows over ten years approached 5% on Friday, before falling to 4.86% on Monday. The gap with Germany, this extra that the markets demand to lend to Paris rather than Berlin, briefly exceeded 1.5 points.

Opposite, the government is proposing an effort of 43 billion euros, between savings and tax increases. The objective remains modest. The aim is to reduce the deficit to 5% of GDP, compared to 5.4% expected this year. Parliament still needs to vote on this budget.

Debt burden: 91 billion euros in interest in 2027

Strangulation already has a price. The debt burden (only interest paid to creditors) would reach 91 billion euros in 2027 according to the draft budget, compared to just over 79 billion today.

Do the math. Interest increases by around 12 billion in one year, or more than a quarter of the 43 billion effort requested from the French. And as the deficit would remain at 5% of GDP, the debt would continue to grow. Bercy sees it increase from 119.3% to 121.7% of GDP.

Interest rates that are already scaring away creditors

Wondering who is behind “the markets”? Very real lenders, and some have started to leave. In Japan, where around $145 billion of French debt is held, assets have already fallen by 2.5% since the end of 2025. Each departure makes the next loan a little more expensive.

A country that borrows at 4.86% is not a bankrupt country, and Greece in 2012 was borrowing at double-digit rates. The choke that Emmanuel Moulin talks about is slow, which makes it easy to ignore.