France’s Borrowing Costs Surge, Reaching Italian Levels Amid Political Uncertainty
Paris, France – France is facing a concerning shift in its financial standing, with its ten-year borrowing rate climbing to match that of Italy for the first time since the Euro’s inception in 2002. This development comes on the heels of the recent collapse of the Bayrou government and ahead of a crucial rating review by Fitch Ratings on Friday.
The yield on French ten-year bonds closed at 3.47% on Tuesday, just below Italy’s 3.48%. Notably, Italian yields briefly dipped below French rates during the trading session – a historically unusual occurrence given Italy’s long-standing reputation for higher debt risk within Europe.
“This situation is unprecedented as the launch of the Euro,” analysts note, highlighting the dramatic change in investor perception.
Why the Shift?
While Italy has historically been viewed as a fiscal risk, recent improvements in its budgetary situation are offering some reassurance to markets. According to Alexandre Baradez, market analyst at IG France, the Meloni government’s commitment to reduce the deficit to 2.8% by 2026 is a positive sign.
In contrast, France has seen its deficit increase over the past three years, bucking the trend observed across much of Europe. “Over the past 3 years, there has been a deficit that has increased in France, in the reverse of what is happening elsewhere in Europe,” explains Julien-Pierre Nouen, director of economic studies at Lazard Frères Gestion.
The rising cost of borrowing reflects the increased risk financial markets are assigning to French debt. As perceived risk increases, investors demand a higher return – driving up interest rates.
Bayrou Government’s Fall Fuels Concerns
The immediate catalyst for this shift appears to be the loss of a vote of confidence for François Bayrou on Monday,triggered by his proclamation of over 40 billion euros in proposed savings in July