Borrowing costs retreat from October's peak
The gap between French 10-year government bonds, known as OATs, and German Bunds reached 161.8 basis points on November 3, 2026, according to Banque de France and Deutsche Bundesbank figures compiled by Ideal Investisseur. The German yield was 3.31%, compared with France's 4.93%. That premium was about 111 basis points on September 29 and reached a peak of 174.6 basis points on October 22.
France's benchmark yield crossed 5% during the week of October 19-23, the first time it had done so since 2002, according to CNBC and Ideal Investisseur data. It reached about 5.13% on October 22, then fell back to roughly 4.9% in early November.
The pressure has shifted attention toward France as fiscal conditions in southern European countries have generally improved. De Grauwe cautioned against equating the French selloff with the eurozone crisis of 2010-2012: Greece, Italy and Spain then faced much larger yield spreads over Germany than France does now. Even so, he warned that France remains vulnerable to market speculation.
Why the ability to issue currency matters
De Grauwe, a chaired professor at the London School of Economics and an authority on eurozone fiscal crises, argues that debt ratios alone do not explain investors' assessment of sovereign risk. France has a central bank, but authority over eurozone monetary policy rests with the European Central Bank.
In a recent interview, he said that "America's fiscal situation is worse than France's, but nobody expects a U.S. default" because "it has a central bank that prints its own money." In his analysis, that monetary distinction helps explain why markets treat France differently.
The International Monetary Fund forecasts general government debt of 118.5% of GDP for France in 2026, below the U.S. figure of 126.8%. Yet Moody's assigns France an Aa3 rating with a negative outlook, compared with Aa1 and a stable outlook for the United States. On September 29, the French 10-year yield was 4.89%, while the U.S. yield was 2.88%.
Japan offers another comparison. Its projected debt ratio is 199.4%, but De Grauwe says there is little discussion of a debt crisis because the Bank of Japan holds a large amount of government debt. "The central bank and the government are both part of the public sector, so they should be viewed as one," he said. Consolidating their balance sheets would cancel out those holdings, he argued, treating them as loans within the public sector rather than debt. He said that approach is not shared in the eurozone or Britain.
Pensions, ratings and a divided parliament
De Grauwe identifies loose fiscal policy as the underlying problem in France, with the pension system the chief obstacle to controlling the deficit. He warned that a future far-right or far-left government could reverse earlier pension reforms and worsen the public finances.
The 2023 reform, which increased the retirement age from 62 to 64, has already been suspended until after the 2027 presidential election. According to Objective Analyst, the National Assembly overwhelmingly approved the suspension on November 12, 2025. It was then incorporated into the 2026 social-security budget adopted on December 16, 2025. The estimated cost is about €400 million in 2026 and €1.8 billion in 2027.
Prime Minister Sébastien Lecornu aims to bring the deficit down to around 5% of GDP by 2027, but political divisions have complicated even the passage of a budget. De Grauwe described "total paralysis, with no majority to be found" and said a solution was unlikely before the presidential election. He does not expect France to be able to reverse its fiscal position politically before at least May 2027.
Those divisions also weigh on the country's credit assessment. On October 23, Moody's retained its Aa3 rating and negative outlook despite widespread expectations of a downgrade. The agency warned that political fragmentation could keep hampering France's legislative institutions. S&P Global and Fitch had both lowered France to A+ in 2025, one notch below Aa3.
The debt burden is expected to grow. CNBC reported that France's finance ministry warned in September 2026 of a debt-to-GDP ratio reaching 121.7% in 2027. More than $1 trillion in French debt is due to mature by 2030.
Whether the ECB intervenes
For De Grauwe, the ECB's response is central to containing the risk. "The ECB cannot abandon France. The very existence of the eurozone is at stake," he said. He argued that France's departure would threaten the entire currency union in a way Greece's potential exit was not thought to during the earlier crisis.
He therefore expects the ECB would have to intervene rather than stand aside. Its Transmission Protection Instrument, which has never been used, permits purchases of a member country's bonds when yields rise beyond levels justified by fundamentals and disrupt the transmission of monetary policy. A further widening of the French-German yield gap would put the ECB's response at the center of the outlook for volatility in European financial markets.
Joint borrowing offers no readily available alternative in his assessment. Although De Grauwe has long supported eurobonds, or shared eurozone debt, he said the political willingness to consider them has faded. He attributed the launch of NextGenerationEU despite opposition to the exceptional shock of the COVID-19 pandemic. "It will only be possible if another major crisis comes," he said of further joint debt. "The eurozone will remain a fragile structure."
A different explanation for Britain's yields
De Grauwe does not interpret British 30-year gilt yields above 6% as evidence of a debt crisis. Instead, he attributes the increase primarily to inflation, with long-term investors seeking higher rates as compensation.
He also pointed to the Bank of England's bond sales as a source of upward pressure on British yields. As part of monetary tightening, it has sold its holdings more aggressively than the ECB.
