France’s borrowing rate hits highest level since 2002

France’s 10-year borrowing rate climbed to 4.94% on Thursday morning, its highest level since 2002, as investors showed growing mistrust of French debt. The rate rose from 4.85% at Wednesday’s close, marking the largest quarterly increase in almost four decades and the sharpest monthly rise since 2022.

The surge comes as Prime Minister Sébastien Lecornu prepares to present an outline of a possible state budget for 2027, a daunting task given France has not balanced its budget since 1973. The government has announced an intention to deliver €54 billion in savings.

Political uncertainty adds to pressure

In remarks reported on Wednesday, Lecornu said energy tensions are pushing rates up in many countries, but in France, political uncertainty ahead of the presidential election is adding to that pressure. He urged, “Let us not pile instability on top of these difficulties.”

Lecornu also warned, “More interest to pay means fewer resources for the country’s priorities. This reality applies to everyone: government, parliament, presidential candidates. Reality is catching up with us.”

The spread between French and German borrowing rates reached its highest level in 14 years, with Germany’s 10-year rate at 3.61% on Thursday, about 1.30 percentage points lower than France’s. European stock markets opened lower, with the CAC 40 in Paris down more than 1.4% by 11am.

Public debt has reached record levels over President Emmanuel Macron’s two terms, standing at €3.596 trillion, or 119% of GDP. Debt is expected to be a main issue in the presidential election campaign. Jean-Luc Mélenchon, candidate of La France insoumise, has suggested cancelling French government bonds held by the European Central Bank to free money for public spending. However, ECB President Christine Lagarde rejected the idea, saying it would be a “clear and simple violation” of EU treaties, which forbid the central bank from financing states.