France faces sovereign debt crisis as borrowing costs near 2008 highs

France’s 10-year government bond yield surged to 4.10% on August 18, marking the highest level since November 2008 when the global financial crisis was in full swing. The 2008 peak of 4.20% is now within striking distance.

The 30-year yield told an even more uncomfortable story, reaching 4.90% on the same day.

The numbers behind the squeeze

France’s public debt stood at 117% of GDP as of July 2026. To put that in perspective, the Maastricht Treaty that underpins the eurozone set a target of 60%. France is nearly double that threshold.

Treasury interest payments exceeded 6 billion euros in the first quarter of 2026, a 37% jump compared to the same period a year earlier.

Rising oil prices, driven by persistent geopolitical tensions in the Middle East tied to Iran, have stoked inflation fears across global bond markets. While yields have climbed in other countries too, including Germany, France’s specific cocktail of high debt, political instability, and structural deficits makes its situation considerably more fragile.

The spread between French OATs and German Bunds has been widening, and France’s borrowing costs are now comparable to those of eurozone countries traditionally viewed as higher-risk.

Political dysfunction meets fiscal reality

Economy Minister Roland Lescure described the 2027 budget preparation process as “difficult,” citing complications from electoral campaigning.

Political fragmentation has manifested through historical government instability over budget votes. The last time France’s books were in the black was 1973.

What this means for markets and the eurozone

For bond investors, the trajectory is forcing a reassessment of French sovereign risk. Higher yields mean existing bondholders are sitting on losses, while new issuance comes at a steeper cost to the French Treasury. If yields breach the 2008 high of 4.20%, psychological resistance could give way to a more disorderly selloff.

Germany, which has long served as the eurozone’s fiscal anchor, faces its own rising yields but from a fundamentally stronger position. The widening gap between German and French borrowing costs is a market signal that investors are increasingly differentiating between core eurozone credits.

The 2027 budget process will be the next major test of whether French lawmakers can produce a credible fiscal plan.

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