France Faces Sovereign Debt Crisis as Borrowing Costs Soar

The Bank of France governor, Emmanuel Moulin, has warned that the country must take drastic measures to avoid a sovereign debt crisis. Speaking on Public Senat television, he stated that the current situation is not comparable to the global financial crisis in 2008, as banks are now 'solid and well-capitalized'. However, he declined to rule out a potential sovereign debt crisis ahead of France's presidential election next year.

Moulin emphasized that the French state is currently able to tap into bond markets, but warned that rising debt-servicing costs risk putting a 'gradual stranglehold' on public finances. When asked if the European Central Bank could step in to support France, Moulin replied that reaching for this idea reflects 'flawed reasoning', stating that tools to fix the deficit lie with national governments and parliament, not necessarily with the ECB.

The warning from Moulin comes as borrowing costs for several countries, including Germany, Ireland, and the US, have reached new highs. The yield on 10-year German bonds hit 3.6%, while Irish 10-year bond yields passed 3.71% for the first time since early 2013. In the US, the 30-year Treasury yield rose to a fresh multi-year high of 5.53%, and the 10-year bond yield reached a decades-high of 5.22%.