France is once again at the center of a brewing fiscal and political crisis, with investors demanding a sharply higher risk premium to hold French government debt.
The yield on France’s 10-year government bonds, known as OATs, climbed above 4.5% for the first time since 2008 and was last seen trading at 4.6696%, reflecting deep market unease over the country’s political stability.
France’s 10-year yield now sits more than one percentage point above German 10-year bonds for the first time since the eurozone sovereign debt crisis in 2012, a threshold that has alarmed investors and analysts alike.
Markets are demanding greater compensation for lending to France than they currently require for Italy or Greece, the two countries most closely associated with the debt turmoil of that earlier era.
Prime Minister Sébastien Lecornu’s fragile minority government will submit a draft 2027 budget proposal to parliament in early October, with a full vote scheduled for November 17 after weeks of contentious debate.
Lecornu has said he will target 54 billion euros, or roughly $61.8 billion, in spending cuts, arguing that fiscal discipline is urgently needed to reduce France’s deficit and stabilize its growing debt burden.
The French finance ministry said it expects national debt to reach a record high of 119.3% of gross domestic product in 2026, with that ratio projected to rise further to 121.7% in 2027.
Two previous administrations were ousted through no-confidence votes in December 2024 and September 2025, and Lecornu only managed to pass the 2026 budget in February by invoking a constitutional clause that allowed him to bypass parliament entirely.
“A tough draft budget for 2027 risks toppling the government despite a widely held desire to avoid a political crisis before the presidential election next spring,” said Mujtaba Rahman, managing director for Europe at Eurasia Group.
Rahman added that Lecornu is likely determined to end the probable last months of his premiership “by forcing through a budget that will, in theory at least, begin the lengthy task of cleaning up France’s state finances.”
ING rates strategists Benjamin Schroeder and Michiel Tukker wrote that the effort to bring the deficit toward 5% from an expected 5.4% this year will face “strong political headwinds” in the weeks ahead.
“But even beyond that, we argue that time is not in favour of French bond spreads,” the strategists wrote, pointing to presidential elections next year and the likelihood of another difficult government formation process to follow.
ING strategists forecast the OAT-Bund spread between French and German borrowing costs will sit between 100 and 125 basis points in the coming months, with the European Central Bank potentially unwilling to intervene while managing fresh inflationary pressures.
Chris Attfield, European rates strategist at HSBC, said the move in the OAT-Bund spread had been “far larger than we would expect” given France’s debt-to-GDP ratio, but noted the ECB would likely only step in if market moves became “disorderly.”
“One complicating factor is the rise in non-domestic ownership of OATs, which now exceeds 50%,” Attfield said, warning that non-sticky foreign investors could force the question of who absorbs French debt at what price.
Lars Machenil, chief financial officer at BNP Paribas, told CNBC that lawmakers should “take the time to have a budget that makes sense and have it pivot in the right way” rather than rush the process.
“I don’t have a crystal ball, but what I see is that there is a willingness to get this over [the line],” Machenil said when asked whether the budget would be approved before key deadlines expire.
“We’ll see. But if you see the progress, if you see the timing, things are progressing well,” he added, offering a cautiously optimistic assessment of France’s increasingly fraught fiscal outlook.
