Key facts
- France's 10-year borrowing costs have risen to 4.7%, the highest since 2008.
- Bank of France Governor Emmanuel Moulin stated that France must avoid a sovereign debt crisis.
- Moulin said it would be misguided to expect the European Central Bank to intervene.
- He noted that fiscal tools to fix deficits lie with national governments, not the ECB.
- France's minority government will present its 2027 budget bill next Thursday.
- Rising debt-servicing costs risk putting a gradual stranglehold on public finances.
France must take all necessary steps to prevent a sovereign debt crisis, particularly as the country approaches its presidential election next year, according to Bank of France Governor Emmanuel Moulin. He emphasized that relying on the European Central Bank to resolve fiscal issues would be a miscalculation.
French 10-year borrowing costs have surged to 4.7%, marking their highest point since the 2008 global financial crisis, as investors demand a higher premium due to fiscal and political uncertainties in Paris. Moulin, however, noted that the current situation is not comparable to 2008, citing a solid and well-capitalized financial sector.
When asked about the possibility of a sovereign debt crisis ahead of the April-May presidential election, Moulin stated, "Everything must be done to ensure this scenario does not happen." He stressed the need for a budget that includes savings and puts the deficit on a downward trajectory. France's minority government is scheduled to submit its 2027 budget bill to lawmakers next Thursday, initiating debates over spending cuts in a divided parliament.
Moulin acknowledged that the French state is currently able to access bond markets without difficulty but warned that increasing debt servicing costs could gradually strain public finances. He reiterated that the tools for addressing deficits are within the purview of national governments and parliaments, not necessarily the ECB. While the ECB does possess crisis mechanisms for severe market stress, Moulin clarified that these are only activated after a country has taken its own remedial actions.