France debt crisis deepens: Euro falls to 17-month low as bond yields rise - here’s what you need to know

France debt crisis explained: France’s fiscal troubles are putting fresh pressure on financial markets, with the euro falling to a 17-month low as investors focus on the country’s budget deficit, political uncertainty and a sharp selloff in French government bonds.

Euro Falls to 17-Month Low as France Debt Worries Grow

The euro fell as low as $1.1161 in Asian trading on Monday, its weakest level since May 2025.

The currency had recorded its fourth consecutive weekly decline against the U.S. dollar on Friday, as concerns about France’s ability to rein in its budget deficit and a sharp bond-market selloff stirred fears of a return of sovereign-debt-crisis dynamics in the euro zone, as per a report.


The market moves come as France faces political uncertainty ahead of the 2027 presidential election and tries to reduce its budget deficit.

French-German Bond Spread Widens Sharply

Pressure has also intensified in France’s government bond market.

The gap between French 10-year government bonds and German Bunds widened to about 150 basis points on Friday, its highest level since the euro zone’s sovereign debt crisis in 2011. The spread later pulled back to 140 basis points and was last up 5 basis points at 145.50 on Monday, as per a Reuters report.

The yield gap is a market gauge of the risk premium investors demand to hold French debt.

Commerzbank strategist Hauke Siemssen told Reuters, “Latest bond market dynamics are increasingly concerning and ⁠somewhat reminiscent of a sovereign debt crisis. Friday's acceleration of the selloff in OAT spreads and flight-to-quality patterns in Bunds are a case in point.”

Siemssen also said the French spread selloff appeared to be increasingly feeding on itself, creating what he described as a dangerous market backdrop.

France’s 2027 Budget Targets a 5% Deficit

France is also trying to address its fiscal position through the government’s proposed 2027 budget.

The government’s draft budget targets a public deficit of 5% of GDP in 2027, compared with an expected 5.4% in 2026.

The plan includes a total fiscal adjustment effort of €54 billion, including €43 billion in measures contained in the 2027 budget and social-security financing bills.

Public debt is expected to reach 119.3% of GDP in 2026 and 121.7% in 2027.

Debt Interest Costs Expected to Rise

The cost of France’s debt is also projected to increase.

Interest payments are expected to rise from €79.2 billion in 2026 to €91.2 billion in 2027 under the government’s budget projections.

The increase comes as the government seeks to reduce the deficit while public debt is projected to rise further.

Political Uncertainty Adds to France’s Fiscal Challenge

France’s fiscal difficulties are unfolding alongside political uncertainty ahead of the 2027 presidential election.

Reuters reported that France’s fiscal position was becoming increasingly unstable, while the country’s political situation was also adding to uncertainty around its budget plans.

Plans to reduce the budget have caused discontent and protests across the country, including unrest connected to concerns about funding and conditions in the education sector.

France’s Debt Crisis Puts Pressure on the Euro

The combination of France’s budget concerns and the sharp selloff in its government bonds has put the country’s fiscal position at the center of market attention.

The euro’s decline followed concerns over France’s ability to rein in its deficit, while the widening gap between French and German borrowing costs highlighted the pressure in the French bond market.

France’s government is now seeking to reduce the deficit to 5% of GDP in 2027 as debt and interest costs are expected to remain elevated.