France Faces Budget Negotiations Amid Rising Debt Costs
French lawmakers must agree on a budget by early October aimed at reducing the country's large national deficit. Political instability has historically plagued previous negotiations, and market observers are concerned this year’s talks could lead to another government collapse. France is experiencing rising borrowing costs as investors demand higher compensation for lending due to ongoing fiscal uncertainty. The yield on French 10-year government bonds (OATs) recently surpassed 4.5%, the highest since 2008, and now exceeds German bond yields by over one percentage point — a level not seen since the height of the eurozone debt crisis in 2012. Prime Minister Sébastien Lecornu plans to propose spending cuts totaling €54 billion ($61.8 billion) as part of his draft budget for 2027, aiming to address France’s unsustainable fiscal path following a credit rating downgrade by Fitch. Political divisions in the National Assembly have intensified since July's snap election failed to produce an absolute majority. Lecornu may need to use constitutional powers again or negotiate compromises with rival parties to pass the budget before mid-December.
Topics: bond yields debt crisis fiscal policy political instability