The key facts

  • French 10-year bond yields are around 4.9%, the spread to German bunds is about 145 b.p., with the high since the 2011–2012 crisis reached earlier in October
  • France's public debt is 119% of GDP (€3.596 trillion at the end of June 2026), the 2026 deficit is forecast at 5.4% of GDP, and interest payments in 2027 will be €91 billion
  • Under Oxford Economics' harsh scenario, France and Italy will fall into recession in 2027, but the eurozone as a whole will avoid a downturn

Yields rise amid protests and budget deadlock

In France, the eurozone's second-largest economy, bond yields continued to rise on Monday after violent street protests over the weekend. The 10-year government bond yield held around 4.9%, close to a more-than-two-decade high: investors are demanding an elevated premium for French debt. Demonstrators are seeking measures in response to the rising cost of living and deteriorating public services, including education. The unrest is intensifying pressure on a government trying to push the 2027 budget through a deeply divided National Assembly. The immediate task is to pass a budget capable of reassuring investors ahead of the presidential election in spring 2027.

What is worrying investors

According to the national statistics agency INSEE, France's public debt stands at 119% of GDP — one of the highest figures in the EU. At the end of June 2026 it amounted to €3.596 trillion, and the government forecasts a deficit of 5.4% of GDP in 2026. Interest payments on the debt will rise from €79.2 billion this year to €91 billion in 2027 — an increase of almost €12 billion. Accelerating inflation and weak growth threaten to reduce tax revenues. The government has little room left for another large-scale spending package akin to Emmanuel Macron's pandemic-era 'whatever it takes' approach.

Oxford Economics scenarios: risk for Italy

Oxford Economics analysts modeled debt shocks in France spreading to other highly indebted eurozone countries and concluded that Italy is especially vulnerable, combining slow growth, high debt and investments sensitive to tighter financial conditions. The current spread to German bonds has risen to about 145 basis points — just below the peak reached earlier in October, the highest since the eurozone debt crisis of 2011–2012. In the baseline scenario, the spread stays below 200 b.p. until the April 2027 election and then narrows; the consultancy considers a debt crisis in France unlikely but a potentially dangerous outcome rather than its base case. In the moderate adverse scenario, the spread widens to 250 b.p. (from about 140 b.p. on October 15), and in the harsh one to 400 b.p. In the harsh scenario, France and Italy slide into recession in 2027, Belgium faces a jump in borrowing costs, and Spain, Portugal and Greece see yields rise but without economic contraction. The eurozone as a whole, according to the calculations, will avoid recession even in the severe variant, in which French 10-year yields reach 7% in the second quarter of 2027 and the deficit exceeds 6% of GDP — a level that, according to Oxford Economics' warning, could trigger a liquidity crisis.

Economists' views and the ECB's role

Andrew Kenningham, chief Europe economist at Capital Economics, called the widening of the French spread to 400 b.p. 'a plausible adverse scenario, comparable to the level of Italy's spreads in 2012,' and agreed that in that case other highly indebted economies would face serious pressure. However, in his words, unlike the early 2010s, the ECB is 'in a much better position' to support countries other than France through the Transmission Protection Instrument (TPI), which allows the purchase of government bonds if a country meets certain conditions. Risks to the banking sector and the probability of a real estate crash, he added, are now significantly lower than in the 2010s: 'the situation could deteriorate sharply, but it is unlikely to reach the scale of the 2010s crisis.' Expectations of ECB intervention to support France itself, meanwhile, are restrained: ECB President Christine Lagarde said last week that the means to halt the rise in French borrowing costs 'must primarily be found in France' — through budgetary measures.

Paths to restoring confidence and the political context

According to Oxford Economics, calming the markets will require gradual spending restraint over several years and clear legislative commitments, especially on the retirement age. Analysts warn that 'the current minority government is not in a position to credibly commit to long-term fiscal consolidation,' so responsibility for painful measures may fall to the next administration. Kenningham noted that investors are expecting a budget that reduces next year's deficit to roughly 5% of GDP: 'any deviation from that benchmark could lead to a further loss of confidence in the French bond market.' Ahead of the election, polls give Marine Le Pen the lead; in an interview with the Financial Times she promised 'a large-scale reduction in state spending while simultaneously reviving the economy.' On October 6 she presented a 'counter-budget': €140 billion in net savings by 2032 compared with 2026, a deficit below 3% of GDP by 2030, and a constitutional budget rule, with cuts to administrative and social spending, immigration costs and France's contribution to the EU budget. Economists questioned the calculations: Mathieu Plane of the French Economic Observatory (OFCE) told Le Monde that more than €80 billion of the assumed savings are poorly worked out and hard to implement. 'France has been heading toward a debt crisis for many years, and that moment is getting ever closer,' Kenningham concluded.