Since central banks ended quantitative easing in 2022, political fragility has become a core factor in bond market pricing across Europe. An Allianz index tracking weekly polling in eight European countries has surged to an eight-year high, driven by party system fragmentation, voter disaffection, polarization, and weakened governability. A one-standard-deviation increase in political fragility now adds nearly 0.5 percentage points to Italy’s 10-year borrowing costs over swap rates, 0.33 points for France, and 0.25 points for Belgium or the UK.

Since 2022, this has raised the cumulative interest bill for Italy, France, Spain, Belgium, and the UK by roughly €100bn—about 3% of their average annual debt-servicing costs, rising to 5% for Italy. Germany, the Netherlands, and Austria show no significant effect yet, but this may change. Sovereign spreads are more sensitive in majoritarian systems like the UK and France than in consensus systems like Germany or the Netherlands, where coalition governments may be fragile but policies sticky.

The main issue is that political fragility acts as a one-way ratchet: once activated, its cost persists in fiscal equations for years, even after headlines fade. Examples include Liz Truss’s 2022 mini-Budget, Macron’s 2024 parliamentary dissolution, and Italy’s 2018 League-Five Star coalition. Redenomination risk has vanished since 2015; markets now price almost purely fiscal risk.

The French-German bond spread could exceed 0.90 percentage points soon and reach up to 1.20% ahead of next year’s French elections, while Italy’s spread remains near 0.80 points but faces rising stakes from a proposed electoral law favoring large majority bonuses.