Against the backdrop of a budget and political deadlock in the European Union, the threat of a debt shock is growing. The euro is updating its minimum values, and experts are drawing parallels with the large-scale sovereign debt crisis of 2010-2012. What is happening in France and in the Old World in general - in a RIA Novosti report.
A sharp rise in the yield on French government bonds forced investors to demand a risk premium. At its peak, the spread to German paper reached 150-160 basis points - the maximum since the eurozone debt crisis of 2010-2012.
Accordingly, when issuing new securities, Paris will have to set a higher coupon rate. This increases the budget's debt servicing costs.
Analysts explain the current situation by a coincidence of several factors.
"The acceleration of inflation in the eurozone in September to a two-year high, a record borrowing plan for 2027 (340 billion euros, a historic maximum), the exit from bonds by a number of large foreign holders, including Japanese funds such as Sumitomo Mitsui DS Asset Management," lists Anton Nikitin, founder and CEO of the company Fingold.
"In the classical sense, this is not yet a debt crisis. A crisis is when a country stops being given loans, as happened to Greece in 2010. France is still being given them. But an acute crisis of confidence is evident. Investors are ready to buy bonds only at a higher interest rate," explains Evgeny Shatov, a partner at Capital Lab.
All of this is a consequence of the budget deadlock in which France finds itself.
By 2025, the deficit reached 5.1% of GDP, and public debt grew from about 60% of GDP in 2000 to 115.5%. And in the middle of this year it was estimated at 119%.
For decades, government spending in France has been among the highest among developed countries.
The Organisation for Economic Co-operation and Development (OECD) states directly: Paris urgently needs to cut them, improve efficiency, and review tax breaks. A separate risk is the aging of the population and the increase in spending on pensions and medical care.
At the same time, the political system has so far not demonstrated the ability to convincingly stabilize the debt, Reuters notes.
A dilemma has arisen: it is necessary simultaneously to reduce the record public debt and deficit (which will inevitably require cutting pensions and social payments) and to "preserve the 'inviolable model of the welfare state.'" And this is in conditions when the country has been gripped by mass unrest over the underfunding of the social sphere and education.
"President Macron has lost his parliamentary majority over a decade in power. Since 2022, no government has been able to carry out budget consolidation without the risk of a vote of no confidence. Michel Barnier's cabinet in December 2024 and Francois Bayrou's in September 2025 were dissolved precisely against the backdrop of unpopular plans to cut spending," Nikitin notes.
The country's sovereign ratings have already fallen noticeably: S&P - A+, Moody's - Aa3 with a negative outlook. In November, a further downgrade from S&P is expected.
If the ratings fall even lower, some funds will simply be obliged to sell French paper. Up to 55% of the debt is held by foreigners, and they will exit first, Shatov warns.
In theory, the European Central Bank (ECB) could help.
"This is exactly the outcome investors are waiting for. The only question is at what point pressure on France will become so strong that the ECB cannot stay on the sidelines," Le Monde quotes economist Robin Brooks of the Brookings Institution as saying.
The regulator does indeed have a special tool for such cases - targeted purchases of the bonds of a troubled country. However, experts recall, France does not yet fall into that category.
"An adopted budget with real savings could change the situation: the ECB would have formal grounds to help Paris if panic arises in the market. But the ECB is fighting inflation, and buying bonds is essentially printing money. In short, the regulator will intervene only in an extreme case. However, the very possibility of such an option is restraining the market," Shatov explains.
Nevertheless, the risk premium that investors demanded when buying French government debt has intensified fears: the trend will soon spread to other European markets.
"Signs of contagion are already visible. Spreads have risen for Italy (from below 100 basis points to 110), Greece (to 95), Belgium (to 80), and more modestly for Portugal and Spain. A curious and telling fact: the yield on French bonds is now even higher than that of Greece and Italy - countries that are considered the weak links of the eurozone," Nikitin points out.
Everything is complicated by political uncertainty around the 2027 presidential election, where candidates with radically different economic programs could reach the second round - National Rally leader Marine Le Pen and the founder of the Unsubmissive France party, Jean-Luc Melenchon.
For example, Le Pen has presented a plan to cut government spending by 140 billion euros. However, the government sharply criticized the project. The ministers of economy and public accounts called it "flimsy as cardboard," "purely incantatory, completely unworkable."
Analysts see a scenario of France's debt crisis spreading to the entire eurozone under three conditions - if the political situation in the country worsens, the ECB refuses to help, and external shocks intensify. For example, the conflict in the Middle East has already cost the economy of the Fifth Republic an additional six billion euros.
The situation is also unfavorable for the single European currency. On October 5, the euro fell to 1.116 per dollar - a low of almost 17 months.
Because of the risks in the EU, global investors are reducing the share of the euro in their portfolios in favor of the American and other safe-haven currencies. The ECB may find itself between two fires: raising rates to fight inflation and the fuel crisis while preventing a collapse in the financial stability of major economies and the entire eurozone. It is not yet clear what will have to be sacrificed.