The risk premium on French debt rose this morning to 81.5 basis points due to political instability following the fall of Prime Minister François Bayrou, surpassing that of Italy and becoming the highest in the eurozone.
The yield on French debt increased to 3.484% around 10:00 am, while the interest rate paid by Italy at that time was 3.482%, according to Bloomberg data.
This marks the first time in fifteen years that the French risk premium, the difference in interest rate compared to the German benchmark, exceeded that of Italy, specifically 82 basis points compared to 81.8 basis points.
This shift coincided with the worsening political crisis in France, as Prime Minister François Bayrou submitted his resignation on Monday at noon, following a crushing defeat in the vote of confidence he had convened to gain the National Assembly’s support for his budget plan with a €44 billion adjustment.
This resignation opened a new chapter of uncertainty, which must first be resolved by French President Emmanuel Macron, who, after Bayrou’s parliamentary setback on Monday, announced that he would appoint another prime minister in the coming days.
This temporarily sidelines Macron’s other option, which was to call early legislative elections, as he ruled out resigning and reiterated that he would continue until the end of his mandate in May 2027.
Political instability in France, with no end in sight, has been reflected in debt markets since the President called for early legislative elections after the setback in the European elections on June 9, 2024, where the far-right was the big winner.
At the beginning of 2024, the yield on French ten-year bonds was around 2.5%, relatively close to the 2% yield on German debt, considered the safest in Europe and clearly below peripheral countries like Spain and Portugal (both slightly above 3%) or Italy (3.5%).
However, the difference with these last countries began to narrow from June 2024. In July, the yield on French debt exceeded 3.3%, and on September 27, the risk premium surpassed Spain’s for the first time since 2008.
In 2025, this trend continued, with the yield rising to nearly 3.6% after Bayrou announced on August 25 that he would undergo a vote of confidence, making it clear he would not win.
The markets had already anticipated the fall of Prime Minister Bayrou’s centrist government, and this morning, the Paris stock market started slightly up, with the CAC-40 reaching 7,791.65 points, compared to the previous day’s close of 7,734.84.
Upon news that the French risk premium had surpassed Italy’s, the CAC-40 moved slightly into negative territory after 11:00 am local time.
Bayrou’s government’s resignation leaves his budget plan in limbo, which aimed to cut the public deficit by €44 billion, reducing it from the expected 5.4% of GDP this year (5.8% in 2024) to 4.6% in 2026.
The objective is to put public finances on a trajectory that allows reducing the deficit to 3% of GDP by 2029, the limit set by European rules, and the level at which it is estimated that if exceeded, debt will continue to rise.
French debt currently stands at 114% of GDP, a level clearly below that of Italy or Greece.
However, its financing costs have increased significantly in recent years and risk continuing to rise if the current rate trends persist.
As Bayrou highlighted on Monday before the National Assembly, in 2024, the debt burden was €60 billion, double the figure in 2020, with the bill projected to rise to €67 billion this year and €75 billion in 2026.
The Court of Auditors estimated that by 2029, it will be €107 billion.
