Key facts
- Euro zone finance ministers and the ECB will urge France to pass its 2027 budget.
- French 10-year bond yields are near 25-year highs, close to 5%.
- France's budget deficit will exceed its 5% target this year.
- France plans to sell a record 340 billion euros of bonds in 2027.
- ECB officials stated the central bank will not intervene in French bond markets.
- Concerns exist about French borrowing potentially triggering a broader crisis.
Euro zone finance ministers and the European Central Bank are expected to advise France on Thursday to pass its 2027 budget in an effort to calm bond markets, according to senior euro zone officials. France is currently facing market scrutiny due to its substantial budget deficit and the upcoming 2027 presidential election.
The yield on France's 10-year bonds has increased by nearly 80 basis points since the beginning of September, reaching its highest point since July 2002 and nearing 5%. This rise in borrowing costs is intensifying the fiscal challenges for the country.
During their monthly talks in Luxembourg, ministers and the ECB will address the surge in French borrowing costs. However, officials indicated that neither the European Commission nor the ECB would directly intervene. A senior euro zone official stated that France possesses the necessary means to respond and that agreeing on a budget is the expected course of action.
Officials emphasized that each institution has its own mandate: the ECB focuses on price stability, while governments are responsible for fiscal stability. France announced in September that its budget deficit would exceed the government's 5% target for the current year. Despite the government's implementation of tightening measures, investors remain skeptical due to the fragmented French parliament and the upcoming presidential and parliamentary elections in April and May 2027.
France is also planning to issue a record 340 billion euros ($381 billion) in bonds in 2027 to finance government operations and refinance debt incurred during the COVID-19 pandemic. While euro zone officials expressed concern that French borrowing could potentially lead to a wider crisis, there have been no signs of contagion to other euro zone countries thus far. Since the euro's inception in 1999, France has only met the EU's 3% deficit ceiling six times, and some officials believe that debt markets may be the only factor capable of compelling fiscal consolidation.