France pays more than Italy and Greece to finance itself and becomes the weak link in European debt
Interest on French bonds rises to highest level in more than two decades, and CNBC Television sees growing fiscal and political pressure in Paris
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM CNBC TELEVISION · 3 MIN
Interest rates on French government bonds have risen to the highest level in more than two decades and are making France's financing costs more expensive, according to a report from CNBC Television. Ten-year bond yields reached close to 5%, and the country today pays more to borrow than Italy, Spain and Greece, former crisis hotspots in Europe.
According to the report, the prices of insurance contracts against default (credit default swaps) also rose, a sign that the market fears that Paris will have difficulty honoring its debts. French interest rates would be converging with those of the United Kingdom.
Debt doubled in 25 years
Over the past 25 years, French debt has doubled, from around 60% to just under 120% of GDP, according to CNBC Television. The primary deficit is described by one of the interviewees as "huge", in a fiscally unsustainable situation.
The report points out that a pandemic relief package, energy price caps after the invasion of Ukraine and tax cuts pushed the debt/GDP ratio to 115%. Growth, in turn, is weak: estimates from the IMF and other organizations are around 0.4% for 2026, a number that, in the words of one interviewee, does not help solve such a huge debt problem.
The generous pension system worsens the situation. In France, it is possible to retire at age 63, and the report states that the cost of the welfare state is not under control. In 2022, there were just over 2.5 people of working age for every person over 65. The projection is that the proportion will fall to 1.7 in 2070. One of the analysts interviewed assesses that there is no credible fiscal path without a relevant pension reform, with a minimum age of 65, preferably 67.
Risk for the eurozone and comparison with the US
The political scenario complicates the equation. According to CNBC Television, what began as a student protest against education cuts has turned into mass demonstrations against the cost of living, and uncertainty over spending cuts continues to weigh on global bond markets.
The report recalls the 2009 crisis, which began in Greece and spread to Portugal, Spain and Italy. The difference is one of scale: Greece represents less than 1.5% of the European Union's GDP, while France accounts for around 16%. A rescue of this size would be extremely expensive, and the final say would rest with the European Central Bank, which has instruments such as the European Stability Mechanism and monetary support for serious cases.
For the investor, the question is whether the pressure on French debt will be restricted to the country. Economists interviewed by CNBC Television say that France is not yet in a sovereign debt crisis, but they see the risk that the deterioration will contaminate the rest of the euro zone and then the global economy.
The United States and France would be on similar fiscal trajectories, with debt above 100% of GDP. According to the report, the Americans have advantages: growth of around 2% or more, debt issued in a currency they control and the global reserve status of the dollar, which sustains demand for their assets.
Automatically translated from Portuguese.
