France’s debt premium hits euro-crisis high amid strikes

France is paying the highest premium over Germany to borrow since the euro zone debt crisis. The government is also promising new money to calm weeks of protests, which adds to doubts about how long its finances can hold up. The extra yield on French 10-year bonds over German ones is now nearly 1.6 percentage points, the widest since the financial crisis, Deutsche Welle reported. It has more than doubled since June. The squeeze comes as unions and students keep up pressure on President Emmanuel Macron's minority government, and as rating agencies grow more wary.dw.com

Concessions France may not afford

The government plans €4 billion in low-interest loans to renovate schools by 2030 and another €1 billion for universities by 2029. DW said this means promising money "the state simply does not have." Other offers include scrapping the Parcoursup university admissions platform, creating 15,000 new higher-education places and capping some high-school classes at 28 students, MoneyWeek noted.moneyweek.com+1

The concessions have not ended the unrest. On Thursday, November 5, the Interior Ministry counted 575,000 protesters nationwide, while the CGT union put the figure at 1.6 million. The ministry also reported 448 arrests, AFP reported. The strike came a day after lawmakers rejected the first part of the 2027 budget bill, Euronews reported.afp.com+1

Ratings pressure builds

On October 30, Fitch kept France's rating at A+ but changed its outlook to negative from stable. The agency pointed to "weaker growth, higher borrowing costs and a wider deficit," and said protests "further complicate the social context for fiscal consolidation," according to Fitch's statement. Moody's kept its Aa3 rating with a negative outlook, CNBC reported. S&P is set to review France on November 27, Natixis noted.cnbc.com+2

Late in October, the 10-year yield reached 5.14%, its highest since 2002, before easing after the Fitch decision, according to Yahoo Finance.uk.finance.yahoo.com

Limited fiscal room

Total interest costs are expected to top €79 billion this year and €91 billion in 2027, and could reach €125 billion to €132 billion by 2030, DW reported. Public debt is around 120% of GDP. J.P. Morgan Asset Management said it is "too early to buy French assets." It cited the pending budget, the unrest and the April 2027 presidential election, though it judged a wider euro area debt crisis unlikely, J.P. Morgan wrote.am.jpmorgan.com+1

ZEW economist Friedrich Heinemann described the spread as a "fever gauge" for bond markets. He warned that if it rises too sharply, "banks then get into trouble, and the crisis escalates further," he told DW.dw.com