FranceS Borrowing Costs Surpass Italy’s in Historic Shift
PARIS – In a striking reversal of fortunes, France is now facing higher borrowing costs than Italy for ten-year bonds, a development signaling deep market concern over the nation’s fiscal stability. Investors are demanding a greater risk premium on French obligations (OATs) as political gridlock and a perceived inability to meaningfully consolidate public finances rattle confidence.This marks a meaningful departure from historical norms,as Italy has long been viewed as the more fiscally challenged nation within the Eurozone. The shift impacts France’s ability to fund government programs and investments, perhaps leading to austerity measures or increased taxes. It also underscores broader anxieties about political instability within the European Union and the future of its economic framework.
The situation stems from a recent vote in the French National Assembly that casts doubt on the government’s deficit reduction goals. While Minister François Bayrou proposed a 44 billion euro reduction in the public deficit by 2026, aiming for 4.6% of GDP and a sub-3% level by 2029, the parliamentary outcome suggests these targets are unattainable.
The symbolism is especially potent given Italy’s past struggles. In 2011 and 2012, during a period of financial turmoil that required intervention from the European Central Bank, Italy’s borrowing rates reached 7%, substantially higher than France’s 3%. Despite Italy’s higher overall debt – currently 138% of GDP compared to France’s 114% – its recent efforts to curb its deficit, now at 3.5%, are being rewarded by the markets.
Economist Christian de Boissieu notes, “The markets are impressed by the adjustment of the Italian public deficit, and impressed in a negative way by our difficulty in significantly reducing ours.” He adds that France’s progress is occurring “at the speed of a turtle.” Despite France’s 430 billion euros in savings, economist Philippe Crevel believes, “It is our political instability that is being sanctioned.”
