Prime Minister Sébastien Lecornu presented France’s 2027 budget on 1 October with €43 billion in new savings and revenue measures, part of a stated €54 billion fiscal effort. The package aims to reduce the public deficit from 5.4% of GDP in 2026 to 5.0% in 2027, before reaching the EU’s 3% threshold by 2029.
Markets offered little immediate relief. On 2 October, the difference between French and German 10-year borrowing costs widened to 152 basis points, its highest level since 2011. France’s bond premium over Germany had already moved above 100 basis points for the first time since 2012, returning to a threshold last seen during the eurozone debt crisis.
The rise is a test of whether fiscal and political strain in one eurozone member can unsettle confidence beyond its borders. France’s 10-year government yield has climbed to around 4.8%, the highest since 2008, and its borrowing costs have risen faster than those of any other developed economy during a wider sell-off tied to higher energy prices in recent weeks.
The political backdrop has made fiscal restraint harder. France’s July 2024 snap election produced no parliamentary majority, complicating efforts to pass budgets and consolidate the public finances. Its spread over Germany has roughly doubled since that election.
Only weeks before early October, France’s bond premium over Germany stood at roughly 100–110 basis points. The move to 152 basis points came as investors assessed the country’s fiscal position ahead of a presidential election.
The insurance cost against a French default has risen sharply too. Five-year credit default swaps climbed from around 52 basis points on 25 September 2026 to 65.4 basis points on 29 September, then reached 71.6 basis points on 1 October, their highest level since July 2013.
Nicolas Forest, chief investment officer at Candriam, said French debt was trading near European debt-crisis territory and warned that the deficit could approach 6% of GDP. The Banque de France has cut its 2026 baseline growth forecast to around 0.5%.
The government is trying to convince investors that the budget can reverse the fiscal trend. The European Commission’s spring projections put French public debt at 118.1% of GDP in 2026 and 120.2% in 2027. France is also in an Excessive Deficit Procedure.
Rating agencies have added to the pressure. Scope cut France’s rating to A+ from AA-, while Morningstar DBRS shifted its trend to negative, citing fiscal and political risks. Moody’s was expected to review France later in October.
France must finance roughly €340 billion of medium- and long-term debt in 2027. It plans €340 billion in issuance, about €20–28 billion more than in 2026. The remaining question is whether the budget measures can restore confidence before the cost of servicing that debt rises further.
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