US broadcaster CNBC has published an article examining France’s unstable financial position. Caliber.Az presents an excerpt from the material to its readers.


"France’s deteriorating public finances and political deadlock are becoming a growing concern for bond investors, with borrowing costs near financial-crisis-era highs as another difficult budget battle looms.


The European Union’s second-largest economy has endured recurring political instability and mounting fiscal strain in recent years. It has repeatedly broken European Commission rules on budget deficits and debt limits, and successive prime ministers have been ousted after failed attempts at reform, spending cuts and tax rises to bring the situation under control.


France is subject to the EU’s excessive deficit procedure, with the Council recommending that it end its excessive deficit by 2029 — but it has a long way to go.


EU treaties set reference values of 3% of GDP for government deficits and 60% for government debt. Last year, France’s deficit reached 5.1% of GDP, while the debt-to-GDP ratio surpassed 115%.


The upheaval has caused acute stress in the country’s bond markets, with French government bond yields rising dramatically over the past year giving France some of the highest government borrowing costs in the G7.


French 10-year government bond yields hit their highest level since 2008, above 4.13%.


The French National Assembly is ideologically fractured, leading to no-confidence votes, government collapse and deadlocks over the national budget.  


France is expected to submit its 2027 budget plans to parliament by early October. Last year’s budget led to a deadlock that saw Prime Minister Sebastien Lecornu force the bill through parliament after months of delays.



Another source of uncertainty that’s weighed on French bonds is the 2027 presidential election, where far-right candidate Marine Le Pen is currently the frontrunner to succeed Emmanuel Macron.


'Poster child' for debt problems


John Stopford, head of multi-asset income at Ninety One, told CNBC that swelling deficits and slowing growth have become a global problem in the wake of the Covid-19 pandemic, wars and successive energy crises, but France 'stands out.'


'It’s not just a French problem, but you could argue that in many ways France is one of the poster child [countries],' he said


There is a broader challenge, he said, for developed governments to find a way to balance their books and bring debt onto a more sustainable

'I can see why people are concerned,' he said of France. 'It’s not obvious how this ends in a good way.'


The big uncertainty hanging over the OATs market is next year’s presidential election, Stopford said.


'Clearly we may get a change of regime or policy priorities post May next year, but people doubt that there’s much appetite for material fiscal consolidation,' he said. 'So yes, I think we might be building up to a crisis. I’m just not sure it’s today.'


Little progress in sight


Théophile Legrand, a rates strategist at Natixis CIB, told CNBC that his team already views OATs as 'pre-stressed.'



'What could delay a recovery is not only domestic politics, but also the broader macro backdrop,' he said. 'The market is not expecting France to return to a 3% deficit as early as 2027, but it does look for signs that the 2027 budget is consistent with a credible medium-term

April LaRusse, head of investment specialists at Insight Investment, said that despite increasingly bleak headlines related to the French economy, there is 'surprisingly little sign that France is preparing for the kind of fiscal adjustment that its debt dynamics would seem to require.'


'Growth expectations are being revised lower, debt is set to keep rising and bond yields are now at levels not seen since the financial crisis,' she said. 'Yet meaningful spending restraint remains politically difficult. With pension reform effectively on hold until after the 2027 election and parliament deeply fragmented, the government appears focused on maintaining political stability rather than tackling the underlying fiscal problem.'


The question for investors now, she said, is whether policymakers can muster the political will to put public finances on a more sustainable

French government bonds already trade more cheaply than their Italian equivalents, which would have been unthinkable not that long ago — but they could get even cheaper in a negative scenario,' she said," the article reads.