France, the second-largest economy in Europe, is experiencing an unprecedented "yield inversion," where it must offer higher interest rates to borrow money than Greece, a country historically associated with Eurozone financial crises. This situation is exacerbated by soaring national debt, ongoing violent protests, and a political crisis of confidence in the government.
On October 21, European financial markets reported that the yield on France's 10-year government bonds (OAT) has surged to around 4.8-4.9%, nearing its highest level in 20 years.
In contrast, Greece's 10-year bond yield, which faced a sovereign default crisis over a decade ago and required bailouts from the International Monetary Fund (IMF), remains at approximately 4.3%. Consequently, French bond yields are about 0.4-0.5 percentage points higher than those of Greece. A higher bond yield indicates that investors perceive greater risk in lending to that country, demanding more in interest.
It is considered highly unusual for France, a leading Eurozone nation, to pay a higher credit risk premium than Greece, which has been labeled a chronic financial crisis country.
The yield spread between French bonds and Germany's 10-year bonds (Bund), regarded as the safest asset in the European bond market, has widened to around 1.5 percentage points (150 basis points). This is the largest gap since the height of the Southern European debt crisis in 2011-2012. Global investors are increasingly selling French bonds and moving to safer assets like German bonds due to rising uncertainties.
The status of French bonds has sharply declined amid persistent fiscal deficits and political turmoil. Currently, France's government debt stands at 119% of its GDP, with a fiscal deficit exceeding 6%, more than double the European Union's recommended limit of 3%.
Additionally, violent protests have erupted in major cities like Paris in response to the government's proposed austerity budget, leading to the deployment of military forces. Opposition parties in parliament are also pressuring the government with threats of a no-confidence vote, heightening political risks. Warnings from credit rating agencies about potential downgrades are further dampening investor sentiment.
Market experts warn that if the French government does not quickly stabilize the political situation surrounding the budget and restore confidence in fiscal health, financial instability originating from France could spread throughout Europe.
* This article has been translated by AI.
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