Euro zone finance ministers and European Central Bank officials are expected to urge France to approve its 2027 budget as rising borrowing costs put renewed pressure on the country’s public finances and unsettle financial markets.
French 10-year government bond yields have risen by nearly 80 basis points since the beginning of September, reaching their highest level since July 2002 and approaching 5%. The increase has made it more expensive for France to finance its large budget deficit and refinance existing debt.
France is already facing pressure over its fiscal position. The government has acknowledged that this year’s budget deficit is likely to exceed its 5% target and has proposed spending reductions aimed at bringing the deficit under control.
The 2027 budget is particularly sensitive because France is heading into presidential and parliamentary elections next year, while political divisions in parliament could make it difficult for the government to secure approval for its fiscal measures.
France also plans to issue a record €340 billion in government bonds in 2027 to finance public spending and refinance debt accumulated during the COVID-19 period.
Euro zone officials said the rise in French borrowing costs was a concern because of the potential for wider financial stress, although there was no clear evidence of contagion to other member states. They also indicated that the ECB was not currently considering intervention in the French bond market, arguing that the immediate responsibility for restoring fiscal stability rests with the French government.
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