France Overtakes Italy as Europe's Bond Weak Link — SkimNews
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- France's 10-year bond yields climbed to just above 4.8%, the highest since 2002, with the spread over equivalent German bonds now at 1.4 points — wider than Italy's 1.1 points, in a complete reversal from 2022
- 38% of France's high-grade corporate debt traded this week at lower yields than allegedly safe French government debt of equivalent maturities, per Bloomberg data, a symptom of the sovereign sell-off
- France's fiscal position remains shaky, with debt at 120% of GDP (third-highest in the euro zone), no balanced budget since 1973, and budget deficits above 5% for three straight years with a 5.4% projected for 2026
- PM Sébastien Lecornu proposed €54 billion in spending cuts and tax hikes for next year's budget, sparing only defence, but the minority government may need to invoke Article 49.3 to force the package through
- Marine Le Pen leads polls ahead of the 2027 presidential election and is calling for a 60%-of-GDP debt cap while simultaneously pushing to lower the retirement age and cut energy taxes — a mix the piece calls unrealistic
- Jean-Luc Mélenchon, Le Pen's far-left rival, proposed having the European Central Bank waive interest payments on some French bonds to 'set fire' to a swath of public debt
Why it matters: Investors have stripped France of its historic anchor status inside the euro zone: its spread over German bunds is now wider than Italy's, and the piece explicitly invokes the 2011-12 Greek-style contagion risk if borrowing costs keep climbing. With both Le Pen and Mélenchon pitching fiscally incompatible platforms ahead of the 2027 vote, bond investors face a multi-year standoff that could push yields higher across the bloc.
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