France's borrowing costs climbed above 5% for the first time in 24 years as the government's failure to agree a budget and violent street protests spooked financial markets, the Guardian reported on Wednesday.
The yield on the benchmark 10-year bond rose more than 8 basis points to 5% in morning trading before easing to 4.99%. The French government has yet to pass its budget for next year, whilst the country has been rocked by increasingly violent street protests in recent weeks.
Protests that began in September with students calling for extra funds to deal with mould- and rat-infested schools, a lack of teachers and large class sizes evolved into wider demonstrations about the rising cost of living. Initially calm protests have often been met with aggressive police tactics, sparking riots in many towns and cities. Stores such as Louis Vuitton have been hit by looting, whilst protesters set fire to the town hall in Limoges.
No single party has had overall control of parliament since Emmanuel Macron called a snap election in 2024. The parliamentary gridlock has blocked his plans to increase the pension age from 62 to 64 and a series of measures designed to reduce or redirect state spending.
France's budget deficit was 5.1% of gross domestic product in 2025, whilst its debt pile stood at 115.6% of GDP. Forecasts for the deficit and debt show both increasing in the current financial year without remedial action.
International lenders have become increasingly reticent about lending to Paris, accusing the government of becoming fiscally incontinent. Some have withdrawn from lending to France, notably Japanese fund managers, and those that remain have demanded a higher price for their loans, especially longer-period loans.
Matthew Ryan, the head of market strategy at the currency trading and payments platform Ebury, said French woes were also dragging down the value of the euro against other major currencies. It remains unclear whether the 2027 budget will clear parliament, he said, and even if it does, it seems set to be so riddled with concessions to both the left and the right that the deficit problem is left insufficiently addressed.
Why it matters for wealth
The eurozone's second-largest economy is showing sovereign debt stress at levels not seen since 2002. UK wealth holders with European bond exposure or euro-denominated assets face currency and credit risk as parliamentary gridlock persists.
Source: The Guardian
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