French Bond Spread Hits Highest Since 2012

France’s borrowing costs have surged as investors question the government’s ability to control its deteriorating finances ahead of next year’s presidential election. The premium on French 10-year bonds over German debt reached about 104 basis points, the widest gap since the 2012 eurozone debt crisis, while French yields approached 4.5% and the cost of default insurance also rose. Public debt is projected to reach 119.3% of GDP this year and 121.7% in 2027, while the budget deficit is expected to remain around 5.4% of GDP—well above the European Union’s 3% limit. Prime Minister Sébastien Lecornu’s government has proposed €54 billion in spending cuts to reduce the deficit, but political fragmentation, repeated government instability and likely resistance to pension or other spending reductions have left investors skeptical. The rise of candidates from both the populist right and hard left, neither of whom is emphasizing stringent deficit reduction, has added to concerns about France’s fiscal direction.