France's bond risk premium, measured by the spread between its 10-year government bonds and German bunds, reached 100 basis points on September 18, 2026. This marks the highest level in over a decade and reflects growing investor concerns about France's fiscal health and political stability. The increase comes after Prime Minister Sebastien Lecornu announced a proposed €54 billion ($62 billion) spending cut for the 2027 budget, aiming to reduce the deficit. However, the Finance Ministry simultaneously revealed that the 2026 deficit is projected to be 5.4% of GDP, missing its earlier 5% target and prompting renewed worries about the country's debt trajectory, which is already at 117.5% of GDP.
The widening spread is also fueled by the government's acknowledgement that the deficit will likely rise to 5.4% of GDP in 2026, up from 5.1% in 2025. Lecornu's proposed cuts aim to bring the deficit down to 5% of GDP in 2027, but this plan faces potential parliamentary opposition just seven months before presidential elections. The political risk is further exacerbated by a far-left candidate, Jean-Luc Melenchon, calling for the cancellation of a portion of France's debt held by the central bank, a move that AXA SA CEO Thomas Buberl called "dangerous" and "playing with fire."
Despite reassurances from France's central bank chief, Emmanuel Moulin, and finance minister, Roland Lescure, that the country's debt issuance is secure, the rising bond yields indicate a clear lack of investor confidence. The economic backdrop of contracting growth in the first quarter and stagnation in the second quarter of 2026, coupled with soaring global oil prices and their potential to spark social unrest similar to the "yellow vest" movement, adds to the pressure on public finances. The proposed spending cuts, while significant, are being viewed with skepticism given the missed targets and political headwinds. Lecornu has stated that the cuts will primarily impact public sector workers by freezing cost-of-living adjustments, while pensions will not be reduced, and the debate on their increase will be handled by parliament.
