France Faces Debt Crisis Ahead of Presidential Election

France is facing a debt crisis ahead of its presidential election next year, according to Bank of France Governor Emmanuel Moulin. The country's 10-year borrowing costs have risen to 4.7%, their highest level since the global financial crisis in 2008. This increase is due to investors demanding a premium to hold French debt because of concerns over fiscal and political uncertainty in Paris.

Moulin emphasized that France must do everything possible to avoid a sovereign debt crisis, which would be disastrous for its economy. He pointed out that the financial sector is solid and well-capitalized, unlike during the 2008 crisis. Moulin stated that reaching for the European Central Bank's rescue mechanisms would be 'flawed reasoning' because the tools to fix the deficit lie with national governments and parliament.

The French state has no problem tapping bond markets, but rising debt-servicing costs risk putting a 'gradual stranglehold' on public finances. Moulin urged the government to pass a budget that puts the deficit back on a downward path through savings. The minority government is due to send its 2027 budget bill to lawmakers next Thursday, starting weeks of wrangling over spending cuts in the deeply divided parliament.