France's borrowing costs at a record high

Nathalie Janson is an associate professor at Neoma Business School and president of the think tank Génération Libre.

For almost ten years, France enjoyed a significant privilege. Despite the deterioration of its public finances, it borrowed on terms close to those of Germany. Its place in the euro area, the liquidity of its bonds and the ‘implicit’ protection of the European Central Bank allowed it to maintain a spread well below those of Spain, Italy, Portugal and, even more so, Greece. French government bonds were long regarded as a close substitute for German ones.

That period appears to be over. On 25 September 2026, the yield on the French ten-year Obligation Assimilable du Trésor (OAT) stood at around 4.71%, compared with 3.60% for the German Bund [1]. The Franco-German spread therefore exceeded 110 basis points, compared with an average of around 38 basis points in 2016 [2]. France now borrows at a higher cost than Spain, Portugal, Greece and even Italy.

A dramatic reversal in ten years

A French risk premium

Part of the recent rise is common to the whole of Europe. The return of inflationary pressures, fuelled by successive energy shocks, has led the ECB to tighten monetary policy. The general rise in yields is common to all of Europe; the widening of the Franco-German spread, however, is specific to France [3]. French public debt now stands at almost 120% of GDP, while the deficit remains above 5%, with targets missed year after year because of an inability to stick to the budget. Since the dissolution of June 2024, a divided National Assembly has prevented a coalition from emerging, a prerequisite for establishing a credible fiscal path. Governments come and go, targets are revised and announced savings remain uncertain. Markets are penalising the absence of a political mechanism to keep the debt under control more than its absolute level.

Businesses and consumers directly affected

The transmission to the economy is gradual but tangible. The OAT is the benchmark rate (the risk-free rate) for all euro-denominated financing in France. When its yield rises, French companies have to offer more (a risk premium) to issue their own bonds. Banks also see their refinancing costs rise and pass this on to loans to SMEs and to mortgage rates. Consumers are therefore affected through several channels. New mortgages become more expensive, even though their cost also depends on the ECB's policy rates and on competition between banks. Consumer credit becomes dearer, while the fall in bond prices can weigh on some financial investments. Finally, the rising interest burden on the state inevitably reduces the room available for public services, benefits or tax cuts. Taxpayers thus pay indirectly for the wider spread.

The British precedent

The United Kingdom offers a further warning. Its ten-year yield stands at around 5.40%, the highest in the group. The country has its own currency and its own central bank, which might seem to give it the advantage of autonomy. However, it benefits neither from the depth of the euro area's bond market as a whole nor from the implicit mutualisation provided by the ECB. A crisis of confidence can therefore trigger both a sharp sell-off of gilts (British government bonds) and a fall in the pound. The Liz Truss episode illustrated this well [4]. In September 2022, the announcement of £45 billion of unfunded tax cuts pushed the thirty-year gilt yield from 3.38% to almost 5% within a few weeks. Pension funds were forced to sell bonds to meet margin calls, and the Bank of England had to intervene urgently.

A long-term perspective

Over fifty years, European interest rates have gone through four major phases: a surge in the 1970s and 1980s driven by inflation, followed by a steady decline from the 1990s onwards thanks to disinflation and convergence towards the euro; an episode of divergence during the sovereign debt crisis, from 2010 to 2012; and finally, a period of zero, then negative, rates between 2015 and 2021 as a result of ECB purchases. Since 2022, the end of quantitative easing, the return of inflation and the deterioration of public finances have ushered in a new period of high rates and greater differentiation between states. France still finds buyers for its debt, but it must now pay them more for the same demand, with an oversubscription rate above 2.5 [5]. Markets are not shutting off the funding tap; they are, however, penalising inaction.

1. Trading Economics, ten-year government bond yields, 25 September 2026. ↩
2. OECD and Federal Reserve Bank of St. Louis, long-term government bond yields, annual averages for 2016. ↩
3. Reuters, Franco-German spread and French public finances, September 2026. ↩
4. Bank of England, forced gilt sales and the September 2022 intervention. ↩
5. Agence France Trésor, negotiable debt and auction results ↩