French borrowing costs have surpassed those of Greece for the first time, as Michel Barnier’s government faces the threat of collapse.
Opposition parties from both the far-right and far-left are challenging the government over its budget proposal, which includes €60bn (£47bn) in tax hikes and spending cuts. Bond investors fear that a government collapse could derail efforts to reduce borrowing and worsen France’s fiscal position.
This shift in borrowing costs highlights a significant change in how lenders perceive the creditworthiness of eurozone countries.
Michiel Tukker, senior European rates strategist at ING, warned: “A no-confidence vote could undo the progress made with the current budget and plunge the country into a period of political uncertainty.”
In 2012, during the eurozone sovereign debt crisis, Greek 10-year bond yields soared to over 37 percentage points above French bonds as Greece teetered on the edge of default. Today, the situation is starkly different. Greek 10-year bonds now yield 2.979%, slightly higher than France’s 2.953%.
France’s rising debt levels, now at 112% of GDP, have gradually diminished its status in the bond market, while former crisis-hit countries—Portugal, Italy, Greece, and Spain—have improved their fiscal positions and become more attractive to investors.
“Even with successful consolidation, France would still maintain a relatively high budget deficit,” said Max Kitson, rates strategist at Barclays. “In contrast, Greece’s debt-to-GDP ratio shows a declining trend, while France’s continues to rise.”
Attention will turn to Friday evening when S&P Global Ratings updates its assessment of France. Fitch and Moody’s recently downgraded their outlooks for the country, intensifying pressure on its fiscal credibility.
