French borrowing costs hit 24-year high amid budget deadlock
Borrowing costs rose above 5% for the first time in 24 years as the government remained unable to pass next year’s budget and violent protests unsettled…
France’s budget deadlock and street unrest are adding pressure to government borrowing, with consequences for the cost of financing public debt. French borrowing costs hit 5% for the first time in 24 years on Wednesday, as investors sold government bonds amid political concerns.
The yield on France’s benchmark 10-year bond rose more than 8 basis points to 5% in morning trading before easing to 4.99%, The Guardian reported. The government has yet to pass its budget for next year, while protests that began in September have spread from school funding complaints to wider concerns about the cost of living.
Markets reacted quickly.
Higher yields mean France must offer investors more in return for lending over the longer term. The Guardian reported that some international lenders have withdrawn from lending to France, including Japanese fund managers, while those still willing to lend have demanded higher prices, particularly for longer-period loans.
Budget impasse weighs on bond market
France’s parliament has had no single party in overall control since President Emmanuel Macron called a snap election in 2024. The resulting gridlock has blocked his plans to raise the pension age from 62 to 64 and measures aimed at reducing or redirecting state spending, according to The Guardian.
The lack of an agreed budget leaves investors without clarity on how the government intends to manage public finances. The Guardian reported that forecasts show France’s deficit and debt increasing in the current financial year without remedial action.
The paper put the budget deficit at 5.1% of gross domestic product in 2025 and public debt at 115.6% of GDP. A separate report published by Yahoo Finance UK on Monday cited a different set of figures: debt at 119% of GDP, a government forecast for a 5.4% deficit in 2026 and public debt of €3.596 trillion at the end of June 2026.
The two reports use different figures and reference periods. Yahoo Finance UK also reported that the government forecast interest payments on public debt of €91 billion in 2027, up from €79.2 billion this year. Those payments would add pressure to public spending as the government tries to reassure investors and respond to demands from protesters.
Protests add to pressure on government
The demonstrations began in September, with students seeking more funding for schools affected by mould and rats, a lack of teachers and large class sizes. They later broadened into protests over the rising cost of living, The Guardian reported.
Initially calm protests have often been met with aggressive police tactics, according to the report, and riots have followed in towns and cities. Stores including Louis Vuitton were hit by looting, while protesters set fire to the town hall in Limoges.
The unrest has made the government’s budget task more difficult: it faces demands for action on living costs and public services while investors want a credible plan to contain the deficit. The Guardian reported that lenders have accused the government of being “fiscally incontinent.”
Matthew Ryan, head of market strategy at currency trading and payments platform Ebury, said political risk was also weighing on the euro. “The euro continues to lag most major currencies as the political risk premium in France looks unlikely to fade any time soon,” he said.
Ryan said it remained unclear whether the 2027 budget would pass parliament, and argued that concessions to both left and right could leave the deficit problem insufficiently addressed. The Guardian reported that the yield on the 10-year French bond eased to 4.99% after reaching 5%.
Source: theguardian.com
