Overview
- This week French 10‑year yields climbed to levels not seen since 2002 and the premium over German 10‑year Bunds widened to historically large margins as markets sold French debt and sought perceived safe assets.
- Markets reacted to France’s large public debt—above 100% of GDP—and the government’s plan for deep spending cuts, tax rises and a record €340 billion of bond sales planned for 2027, which together have raised doubts about fiscal credibility.
- The IMF and senior bankers publicly urged sizeable, credible consolidation to calm markets, with UBS warning that only strong measures will restore confidence and avoid a broader eurozone disturbance.
- Widespread student protests and a fragmented parliament have made it harder for Paris to pass tough budget measures, increasing the risk that promised cuts will be watered down before next year’s presidential vote.
- Policy makers and investors have pulled back on bets for more ECB rate hikes as officials weigh bond market spillovers, and eurozone finance ministers signalled they want France to pass a 2027 budget to steady markets.