French Markets Under Pressure from Debt Concerns Ahead of Presidential Election

French markets are facing growing pressure due to concerns over high debt levels and political uncertainty ahead of next year's presidential election. The government is seeking €54 billion ($61 billion) in savings for its 2027 budget proposal, but this has been met with protests at schools across the country.

The risk premium attached to French debt, measured by the gap between French 10-year borrowing costs and their German equivalents, has risen to 150 basis points. This is its highest level since the euro zone crisis in 2012, and analysts warn that it could hamper the government's ability to rein in its strained finances.

The European Central Bank has tools to prevent bond yields from spiraling out of control, but experts believe there is little chance they will need to intervene for France. Marion Le Morhedec, CIO at Fidelity, warned that the market is 'testing the political situation,' telling politicians 'you need to be careful with the budget.'

The French stock market has lagged behind broader European markets this year, falling nearly 4%, while economic growth is slowing. The Bank of France expects an expansion of just 0.4% this year, down from 0.9% in 2025.