Finance: French bonds are losing credibility

While most European bond markets display relative stability, the situation in France is causing serious concern. Yields on 10-year sovereign bonds reached 3.05%, an exceptionally high level for a major eurozone economy. This dynamic reflects a combination of economic tensions and political dysfunction, which reinforces doubts about the country's fiscal management. With a public debt that exceeds 112% of GDP and a deficit that stagnates above 6%, France stands out as a case of concern within the European Union. These developments signal a loss of investor confidence, but they also shed light on the urgency of structural reforms to avoid an even more marked deterioration of its position on the financial markets.

Growing tension on French bonds

French bonds, long considered a safe investment, are going through a period of unprecedented crisis of confidence. This year, the rating agency Moody's lowered the rating of French debt, because it cites “increased risks linked to the absence of a clear budgetary trajectory”. Thus, this observation provides information on structural weaknesses in the economic management of the country. France, which represents the second largest economy in the European Union, finds itself in a situation of prolonged political uncertainty, exacerbated by the absence of a validated budget for the year 2025. To compensate for this legislative void, a special law was adopted in order to guarantee the continuity of public services. However, this transitional measure was not enough to allay investors' concerns.

Financially, the indicators show a critical situation. Public debt now reaches 112% of GDP, while the budget deficit remains above 6%, levels that are difficult to sustain for an economy of this size. These figures reflect a constantly increasing debt trajectory, as specified Frank Gill, analyst at S&P Global Ratings: “the debt trajectory will continue to increase without significant adjustments.” At the same time, other euro zone economies, previously perceived as more vulnerable, are managing to stand out. Countries like Portugal and Greece, thanks to rigorous budgetary reforms and sustained economic growth, now benefit from more competitive bond yields. This contrast underlines the urgency for France to adopt measures capable of restoring confidence in the markets.

The example of peripheral economies: an opposite trajectory

While France is struggling to convince investors, other countries in the euro zone, previously perceived as vulnerable, are displaying remarkable economic resilience. Portugal and Greece, in particular, are now recording budget surpluses accompanied by solid growth rates, performances which reinforce their credibility on the financial markets. Frank Gill highlights this development: “Greece's 10-year yield has fallen by 0.5% this year, a trend that could continue if their debt continues to decline relative to GDP.” This progress is part of a dynamic where budgetary rigor and proactive debt management have enabled these countries to improve their image.

Such a reversal of the situation relies on rigorous political choices, notably an accelerated reduction in debt and convergence with German standards in terms of budgetary discipline. This strategy allowed them to reduce their borrowing costs, but also to sustainably improve market perception. Conversely, France appears to be facing structural obstacles that hamper its ability to implement major reforms. This contrast illustrates a systemic problem within the euro zone, where growing disparities in the management of public finances risk further weakening economic cohesion if corrective actions are not quickly taken.

Thanks to the gap widened with countries previously considered less solid, France is fueling a feeling of uncertainty which could weigh on its ability to finance its economy on favorable terms. This situation highlights the urgent need for ambitious measures to restore investor confidence and prevent gaps between European economies from turning into irreparable fractures.

Without ambitious and immediate measures, France risks seeing its bond yields continue to increase, which will increase the cost of its public debt. In the short term, the absence of a clear budget for 2025 maintains high uncertainty, and further reinforces investor caution. However, recovery is still possible. The adoption of structured budgetary reforms and the restoration of confidence in the markets could allow the country to stabilize its finances. These decisions which will be taken in 2025 will play a key role in redefining France's economic trajectory, but also in preserving the financial balance of the European Union in the face of growing divergences between its members.