Economy. Ten-year borrowing rate: the France/Germany gap reaches one percentage point, a first since 2012

The gap between the 10-year borrowing rates of France and Germany reached one percentage point this Friday, marking the growing mistrust of the markets towards French debt before the 2027 budget and the presidential election. This would mark a closing high since 2012 for this gap. Shortly before 1 p.m. (French time), ten-year French bonds posted a yield of 4.50% compared to 3.50% for the German “Bund”, which serves as a standard for the euro zone on the bond market. France borrows at higher costs than other countries such as Greece and Italy.

“Italy, considered the sick man of Europe for years, has managed to bring its deficit down to the 3% zone. On the deficit trajectory, Italy has managed to make this effort when France remains in the 5% zone,” comments Alexandre Baradez, head of market analysis at IG France. The rise in interest rates affects all major economies, starting with the United States where the yield on ten-year Treasury bonds exceeded 5% this week for the first time since 2007.

This increase is a reaction to the risks of inflation, which itself derives from the surge in energy costs caused by the war in the Middle East. In the case of France, the markets are also worried about a public debt at 117.5% of GDP on the threshold of the presidential campaign. “It is possible that the political component in France prevails over the geopolitical component,” according to Alexandre Baradez. “The presidential campaign is going to be complicated, will alert and worry the markets. We can expect social tensions which would add to bond tensions,” adds Vincent Juvyns, analyst for ING.

First consequence: the gradual increase in rates increases the cost of future borrowing. “The debt burden was expected to reach nearly 60 billion euros this year, either the defense or national education budgets,” recalls Vincent Juvyns. The rise in rates complicates the task of Prime Minister Sébastien Lecornu, who presented Thursday evening the broad outlines of the 2027 budget proposal promising an effort of 54 billion euros. Despite the economic situation, French debt is “very attractive” and “there are no fears about state financing” despite interest rates at the highest since 2008, said Tuesday the governor of the Bank of France Emmanuel Moulin.