Euro Hits 17-Month Low Amid Rising French Debt Concerns

The euro has plunged to a 17-month low against the US dollar, raising concerns about a potential fiscal crisis in the Eurozone. The currency fell to $1.12 on Monday, its lowest level since early 2025, as investors worry about rising French debt and political instability. The difference between French and German 10-year debt yields has reached its highest level since the Eurozone debt crisis, signaling growing financial instability.

Investors are particularly concerned about France's fiscal problems. The country's national debt has increased by over €1 trillion since President Emmanuel Macron took office in 2017. France's debt-to-GDP ratio now stands at almost 118%, and its annual budget deficit exceeds 5%. These issues have led to a sell-off in French debt, with 10-year government bond yields rising to 5% before easing slightly.

The European Central Bank (ECB) faces a delicate situation. Policymakers must act to prevent panic without exacerbating the problem. Ricardo Amaro of Oxford Economics notes that the ECB needs to monitor currency developments carefully but avoid influencing the market directly. A weaker euro could worsen inflation, increasing the cost of imported goods and energy.

Political instability in France and Spain is adding to the economic pressures. The right-wing National Rally is gaining ground ahead of the 2027 presidential election, raising concerns about future economic policies. In Spain, Prime Minister Pedro Sánchez has called a snap election after measures to address the housing crisis were rejected. The combination of political and economic challenges is fueling uncertainty about the Eurozone's stability.