Concerns are rising over France’s borrowing rates, which recently exceeded Greece’s for the first time. Political instability, including potential motions of censure from the left, is exacerbating market anxieties as the government reviews the 2025 budget. While officials assert that France’s economic fundamentals are stronger than Greece’s, the nation’s elevated borrowing rates compared to other European countries remain troubling. Upcoming assessments from rating agencies could further influence market confidence in France’s financial stability.
France’s Borrowing Rates Raise Concerns
Should we be worried? On November 27, a significant shift occurred in the financial markets when France’s ten-year borrowing rate momentarily surpassed that of Greece for the first time. Aurélien Buffault, a bond manager at Delubac AM, pointed out the notable implications of this event, stating, “France has some leeway, of course, but the symbol is there,” as reported by AFP.
Just a day earlier, on November 26, Michel Barnier expressed grave concerns during an interview on TF1’s “20 heures” news program, labeling the situation as “very serious.” The Prime Minister echoed these sentiments, referring to “a storm, a rather serious financial situation,” and highlighted that France is currently borrowing at high rates, “almost at the level of Greece.” This alarming backdrop preceded the unprecedented financial event that unfolded the following day.
Political Instability and Market Reactions
As the government navigates through the examination of the 2025 budget, political uncertainty is intensifying market anxieties. The left has already signaled its intent to introduce a motion of censure if the executive resorts to Article 49.3 to pass the finance bill (PLF) without a parliamentary vote. Similarly, the National Rally (RN), represented by 140 deputies, is also imposing its conditions. On November 28, the Prime Minister assured that there would be “no increase in electricity taxes in the 2025 finance bill,” responding to Marine Le Pen’s demands. However, the RN deemed this gesture insufficient.
Since the government’s dissolution, a climate of political uncertainty has emerged, prompting market reactions. Maud Bregeon warned about the potential for a Greek-like scenario, stating, “Without waving the fear flag, who wants to offer as a Christmas gift to the French for 2025 a deficit of over 7% and soaring interest rates?” during an interview with Le Parisien.
Despite the government’s efforts to instill confidence, the financial landscape remains precarious. Economy Minister Antoine Armand attempted to soothe fears by declaring, “France is not Greece,” on BFMTV. He emphasized the nation’s stronger economic fundamentals, stating, “France has an economy, an employment situation, economic activity, attractiveness, and demographic power that are much higher.” He also addressed the temporary increase in borrowing rates, suggesting that countries that have addressed their economic challenges can pave the way for future investments. Armand highlighted the necessity of reducing the public deficit to 5% of GDP by 2025.
It’s important to note that France and Greece operate under vastly different circumstances. France’s population is 6.5 times larger than Greece’s, and its GDP per capita is double. Furthermore, France’s national economic wealth has reached a staggering 20 trillion euros, with households holding 14.8 trillion euros—nearly eight times its GDP. This ratio underscores the robustness of France’s economic resources. In contrast, France’s public debt stands at 110% of GDP, while Greece’s is significantly higher at 160%.
Currently, France’s borrowing rate remains elevated compared to those of Spain, Portugal, Ireland, and Italy. However, the spread between French ten-year rates and those of Germany, a reliable safe haven in Europe, has decreased slightly following the announcement regarding electricity prices. Alexandre Baradez, head of market analysis at IG France, noted that “the market is less interested in political debates than in the time needed to implement the first budgetary effort measures,” suggesting that concessions can positively influence market perceptions.
In addition, France is awaiting a critical assessment from the S&P rating agency, expected to be announced on the evening of November 29. Earlier in October, Moody’s and Fitch had maintained France’s rating but with a negative outlook. The evaluations by these rating agencies hold substantial weight for the markets; a country perceived as solvent typically enjoys lower borrowing rates, reflecting investors’ confidence in its repayment capabilities.