France's Rising Debt Sparks Sovereign Crisis Concerns Across Europe

France, once seen as a safe borrower on par with Germany, is now facing a sharp rise in its borrowing costs. Last week, investors demanded up to 5% annually to lend to the French government for 10 years, a level not seen since 2002. The gap between French and German bond yields hit its highest point since the 2011-2012 eurozone debt crisis, with France now paying more than Italy and Greece.

The root of the problem lies in France's growing government debt, which reached 119% of GDP in the second quarter of 2026, up from 115.6% a year earlier. The country's deficit is expected to hit 5.4% of GDP this year, far exceeding the EU's 3% limit. The French Treasury plans to issue €340 billion in debt in 2027, adding to the pressure.

Despite proposing a budget with €54 billion in savings and higher taxes, Prime Minister Sébastien Lecornu's government faces skepticism. Investors worry about the government's track record of missing budget targets and the upcoming presidential election in spring 2027. Economists like Stéphane Colliac of BNP Paribas predict debt could rise to 124% of GDP by 2032 if current trends continue.

The crisis is spreading concerns across Europe, with Italian and Greek bond yields also rising. The European Central Bank faces a difficult balancing act between fighting inflation and supporting stressed government bond markets. The immediate risk is political deadlock preventing France from passing a budget, which could further escalate borrowing costs.