{"id":440429,"date":"2026-10-20T14:00:19","date_gmt":"2026-10-20T07:00:19","guid":{"rendered":"https:\/\/www.swingfish.trade\/blog\/market-news\/macro-pulse-frances-debt-crisis-doesnt-have-to-get-worse-to-keep-hurting-the-euro-440429\/"},"modified":"2026-10-20T14:00:19","modified_gmt":"2026-10-20T07:00:19","slug":"macro-pulse-frances-debt-crisis-doesnt-have-to-get-worse-to-keep-hurting-the-euro","status":"publish","type":"post","link":"https:\/\/www.swingfish.trade\/blog\/market-news\/macro-pulse-frances-debt-crisis-doesnt-have-to-get-worse-to-keep-hurting-the-euro-440429\/","title":{"rendered":"Macro pulse: France’s debt crisis doesn’t have to get worse to keep hurting the euro"},"content":{"rendered":"
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France has been the talk of the town in Europe over the past few weeks, and even more so after the weekend riots that we have just seen. Perhaps the only good news is that we haven’t quite seen\u00a0France’s debt troubles spiral into a full-blown crisis. But even if things stay exactly as they are, I would argue that France’s problems are still a big risk for the euro.<\/p>\n

The French-German 10-year yield spread has widened again to around 147 bps as of yesterday,\u00a0as investors continue to demand a much higher premium to hold French government debt. Now, that is still just below the key 150 bps threshold from the highs earlier this month. So, it’s not to say that the latest developments are leading to another euro area debt crisis just yet.<\/p>\n

Having said that, I wouldn’t label the yield spread at the current level as being reassuring either.<\/p>\n

France’s borrowing costs are already on the verge of hitting 5%, while Germany’s are closer to 3.5%. And with France struggling to get its budget deficit under control, there’s little reason for investors to suddenly stop demanding that extra premium. And that is where the euro might be facing a problem.<\/p>\n

Even if France’s fiscal troubles don’t escalate into a wider euro area debt crisis<\/a>, persistently elevated borrowing costs can still do plenty of damage.<\/p>\n

If things keep up, it means that\u00a0France will have to spend more on servicing its debt as existing bonds mature and are refinanced. And that is money that could otherwise support investment and economic growth. For some context, the European Commission is forecasting the French economy to grow by just 0.8% this year. So, that suggests there is hardly much room to manoeuvre.<\/p>\n

Besides that, there is also the risk that\u00a0investors start demanding a higher premium elsewhere in the region. That might especially be the case in heavily indebted countries like Italy (cue the flashbacks). Now, that doesn’t\u00a0necessarily mean contagion is underway, but it makes the euro area as a whole a much less attractive investment proposition.<\/p>\n

Then, there is also the fact that the ECB is facing up against a rather tough balancing act<\/a>. Higher inflation is leading to higher borrowing costs and that threatens the growth outlook. But for argument’s sake, let’s just assume the ECB doesn’t have an inflation mandate to take care of. Even so, cutting interest rates\u00a0won’t necessarily resolve the fiscal concerns that are driving French yields higher.<\/p>\n

So, therein lies the problem for the euro even if there isn’t exactly another sovereign debt crisis just around the horizon.<\/p>\n

If investors continue questioning France’s fiscal outlook while the rest of Europe struggles with sluggish growth, the single currency could remain under pressure even without another major selloff in French bonds. In that lieu, it is important to remember that the absence of a crisis is not the same thing as a healthy market.<\/p>\n

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This article was written by Justin Low at investinglive.com.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"

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