The new sick man of Europe: Could France trigger a new sovereign debt crisis?

French bond yields are surging as the country’s political deadlock over its debt shows no sign of abating
The euro has plummeted to a 17-month low against the dollar as investors punish the single currency, largely over France’s intractable debt problem. Once relegated to the Eurozone’s periphery, sovereign debt risk has progressively moved toward the center of the monetary union, now reaching France, a key pillar in the entire European project.
French long-dated bond yields have surged to their highest levels in nearly a quarter of a century as the country’s political gridlock over how to address its debt pile shows no sign of abating. The government is trying to push through spending cuts, but with a presidential election coming into view, opposition politicians vying to replace President Emmanuel Macron are in no mood to sign under anything resembling austerity.
RT takes an in-depth look at what’s happening in the new sick man of Europe and whether the turbulence in France could trigger a major crisis or intervention by the European Central Bank.
France’s fiscal flop–>France’s finances are a mess. The country’s public budget deficit stood at 5.1% of GDP in 2025, while its debt-to-GDP ratios hit 115%. Both figures are well above EU limits. These are numbers more commonly associated with wartime or at least a deep recession. The rhetoric of its political class notwithstanding, France is not, in fact, at war.
France has accumulated more than €3.5 trillion in public debt, which is becoming more expensive to finance as the yields on its bonds have risen dramatically over the past year. French Prime Minister Sebastien Lecornu is seeking to push through cuts to public spending worth €54 billion in the 2027 budget, but his minority government is facing stiff resistance. Meanwhile, neither of the leading candidates in next year’s presidential election, Marine Le Pen of the right-wing National Rally Party and Jean-Luc Melanchon of the Socialist Party, has offered credible proposals to address the debt.
Le Pen has proposed putting a golden rule to restrain French deficits to a public vote via a referendum, thus likely condemning it to failure, while Melanchon is calling to simply cancel roughly a fifth of France’s public debt while increasing public spending.
Meanwhile, Paris has committed to billions in increased defense spending in the coming years. A major update to the country’s defense budget authorizing an additional €36 billion for 2026–2030 was signed off on by lawmakers in June.
France must prepare itself to confront simultaneous, prolonged and high-intensity crises, including on its own soil, according to Defense Minister Catherine Vautrin.
Bond market troublesThe prolonged and high-intensity crisis on French soil that Vautrin must have had in mind is the country’s own bond market.
The yield on France’s 10-year OAT has now climbed to around 4.87%, even briefly hitting the 5% mark in late September, its highest level since 2002. The spread between the French 10-year OAT and German 10-year Bunds rose by 50 basis points in September to reach 128 basis points, the highest level in 14 years.
France now pays more to borrow than Greece and Italy, once the Eurozone’s most worrisome members. France’s 5-year sovereign credit default swaps – a tradable insurance policy against default or debt restructuring – have climbed to approximately 87 basis points, their highest level since early 2013.
Compounding the problem is the fact that foreign investors own around 50% of France’s government debt, which exposes the country to divestment risk. Japanese funds, for example, are overweight French bonds more than benchmark weightings would recommend. If they become skittish, the selling pressure could intensify. French banks, meanwhile, who would be far less likely to fire-sell the bonds, are estimated to only hold around