France saw its borrowing costs climb above five percent on Tuesday for the first time in twenty four years. Financial markets reacted to political concerns and the failure of the government to agree on a delayed budget.
A fresh bout of selling pushed up the yield on ten year government bonds issued by the French Treasury. The benchmark rate rose more than eight basis points to reach five percent in morning trading before easing slightly to 4.99 percent.
The financial pressure on the eurozone’s second largest economy comes as the country deals with violent street protests and a failure to pass next year’s budget. Civic buildings still smoulder in several towns following recent riots.
Demonstrations began in September when students called for extra funds to address mould and rat infested schools, teacher shortages, and large class sizes. These rallies quickly evolved into wider protests regarding the rising cost of living.
Initially calm protests often met aggressive police tactics, sparking riots across many French towns and cities. Stores such as Louis Vuitton suffered looting, and demonstrators set fire to the town hall in Limoges.
President Emmanuel Macron called a snap election in 2024, leaving no single party with overall control of parliament. This gridlock has blocked plans to increase the pension age from sixty two to sixty four years, alongside measures to reduce state spending.
France recorded a budget deficit of 5.1 percent of gross domestic product in 2025, with public debt standing at 115.6 percent of GDP. Forecasts indicate both figures will rise this financial year without remedial action.
International lenders have grown reticent about lending to Paris, accusing the government of fiscal incontinence. Some lenders, such as Japanese fund managers, have withdrawn entirely while others demand higher interest rates for longer loans.
Matthew Ryan, head of market strategy at currency trading platform Ebury, said French problems were dragging down the value of the euro against other major currencies. He noted that the political risk premium in France looks unlikely to fade soon.
It is unclear whether the budget will clear parliament, and even if it does, concessions to the left and right may leave the deficit problem insufficiently addressed, according to Ryan.
