France debt fears grow as borrowing costs rise

France's debt problems are drawing deeper investor concern as borrowing costs rise and political uncertainty clouds efforts to cut the deficit before the April 2027 presidential election.

Public debt has swollen to just under 120 percent of gross domestic product, more than double the EU limit of 60 percent and the third highest in the bloc after Greece and Italy. France's deficit remains above five percent of GDP, compared with a eurozone average of 2.9 percent.

After weeks of selling, the yield on 10-year French government bonds is near five percent, a level not seen since 2002. Higher yields make it more expensive for the government to borrow and could add pressure to already strained public finances.

Bank of France governor Emmanuel Moulin told the Financial Times that France risked being “strangled by interest rates” unless its public finances were brought under control. Investors are also awaiting an October 23 decision by Moody's on France's sovereign credit rating.

Some analysts say France is not facing an immediate crisis. Nicolas Forest, director of investments at Luxembourg-based Candriam, said France does not have an immediate financing problem and that only 14 percent of its debt falls due in 2027.

Economy Minister Roland Lescure has said there are “no problems” placing French debt on the market. At the last auction, demand was double the six billion euros in bonds on offer.

Market concern is focused on whether the government can credibly reduce deficits over the medium term, especially with the presidential election approaching. Ales Koutny, head of international rates at Vanguard, told the Financial Times the election could make it harder to agree on unpopular spending cuts.