French bond yields top Italy’s as debt crisis fears grow

France's borrowing costs have jumped to levels not seen since the 2008 financial crisis, and on Thursday, Oct. 8, The New York Times, The Economist and economist Paul Krugman all warned that Europe's second-largest economy may be heading toward a debt crisis. Investors are now demanding more to lend to Paris than to Rome.

The yield on France's 10-year government bond, known as the OAT, rose to 4.86% on Oct. 7, up from 4.74% the day before, according to UCapital. That widened its premium over German Bunds to 139 basis points. Banque de France data show the yield averaged 4.48% in September, compared with 3.67% in June. Large deficits, political turmoil and a presidential election set for 2027 are all feeding the worry.ucapital+1

A spread above Italy's

The New York Times described France as "veering toward a potential debt crisis" and called it "a warning to the world." The Economist's lead editorial ran under the headline "Will bonds blow up?" Krugman wrote on his Substack that markets are suddenly "treating France as the economic sick man of the Western world." He noted that French rates have risen relative to the rest of Europe and now sit above Italy's.paulkrugman.substack

Morningstar reported in late September that the gap between French and German yields had widened by about 47% since early 2026. That left it above the spreads for Italy and Greece, and at heights not seen since the 2010-2012 euro-area debt crisis. Analysts quoted by Morningstar said the loss of investor confidence looks more like Italy's 2018 bond market shock than a crisis spreading across the whole continent. ING warned the spread could reach 125 basis points, and Pictet said 150 was possible before the election. On Oct. 7, it went past ING's figure.global.morningstar+1

Deficits and pensions

The government's budget plan aims to cut the deficit from a projected 5.4% of GDP in 2026 to 5% in 2027. Krugman argued that France's main weakness is its "persistent inability to get realistic about retirement." A planned rise in the retirement age to 64 has been frozen until after the election, leaving it at 62 years and 9 months. Marine Le Pen, who leads the polls for 2027, has promised to bring it back down to 62.efginternational+1

He also pointed to the cost of insuring French debt against default, known as credit default swaps, which has risen sharply. Even so, he noted, those prices imply only about a 1.2% chance of default over five years, a figure he thinks is too low.paulkrugman.substack

Too big to save?

Krugman warned that because France uses the euro and cannot print its own currency, a loss of confidence could spiral the way it did in Greece, Portugal, Spain and Italy between 2009 and 2012. He questioned whether the European Central Bank would rescue a country that has not cut spending, given likely opposition from creditor nations such as Germany.paulkrugman.substack

"France may have crossed the line from too big to fail to too big to save," he wrote.paulkrugman.substack