Daire Mac Fadden Published October 7 2026 French government borrowing costs have shot up more than 1.5 percentage points since the start of the Iran war and more than 0.5 percentage points in just the past month. The all-important OAT-Bund spread — the difference between French and German 10-year borrowing costs — peaked at 1.6 percentage points last week before falling back to just shy of 1.3 percentage points yesterday. The start of the budget process last week may have halted the sell-off but it hasn’t done much to dispel the sense of dread that’s threatening to hang over the French economy from now until the presidential elections next spring.
Tensions are rising as the confrontation over the budget deepens and the country prepares for an April presidential election that could end in a face-off between the far right and hard left. The fear among investors is that the country could be tipped into a full-blown debt crisis that could not only rock France’s economy but also shake the Eurozone. On Monday, the euro fell to a 17-month low against the dollar as worries intensified about the impact of the French debt sell-off on the single-currency area.
France hasn’t run a balanced budget since 1974. Proposals to ease the pressure include ECB intervention in the French bond market using the Transmission Protection Instrument (TPI) or halting balance sheet shrinkage, though both face significant political and legal hurdles.
Source: Financial Times Markets · Summarized by HeadlinesBriefing