France’s borrowing premium hits its highest since the euro debt crisis

What happened

The gap between French and German 10-year government bond yields, known as the OAT–Bund spread, widened to about 147 basis points on 5 October. That is its widest since the euro area debt crisis of 2011–2012. The spread is usually between 20 and 50 basis points, and was around 60 in February.

Our latest October readings put France’s 10-year yield at 4.85%, against 3.43% for Germany.

Why this is a pure risk premium

France and Germany share a currency and a central bank. The European Central Bank sets one interest rate for both, so investors expect the same path for short-term rates in each country. The difference in their bond yields therefore reflects one thing: how much extra investors want for the risk of lending to France rather than Germany.

That makes the spread one of the cleanest ways to measure political and fiscal risk in any economy.

What is driving it

• Debt and deficit. French government debt is about 119% of GDP, against the EU’s reference value of 60%. The budget deficit is projected at about 5.4% of GDP in 2026, above the EU’s 3% limit.
• Political deadlock. No party has held a stable majority in the National Assembly since the snap election of June 2024. France has had four prime ministers since then.
• A modest plan. The government’s 2027 budget aims to cut the deficit to 5% of GDP. Investors see this as a small step.

Where it sits in the chain

This is politics feeding directly into link 4. The ECB has not changed its policy because of France, yet French borrowing costs have risen sharply. The effects then travel to link 5: French mortgages and company loans become more expensive, and the euro comes under pressure as investors grow more cautious about the region.

What to watch

• The National Assembly vote on the social security budget on 27 October.
• Any credit rating changes. A downgrade forces some investors to hold less French debt.