New Delhi [India], October 30 (ANI): France's mounting government debt and rising bond yields could trigger a fresh crisis at the heart of the Eurozone, with the risk of financial contagion threatening the stability of the common currency, according to a report by Jefferies GREED & fear.
The report, titled ‘From the periphery to the core’, said the scale of French government debt and its ownership had made a renewed Eurozone crisis a realistic possibility over the next year, particularly if bond yields remain elevated.
“But what is scary to GREED & fear, and makes a Eurozone crisis at the core, a quite realistic prospect in the next year or so in a world where bond yields remain elevated, is the scale of French government debt and its ownership,” the report said.
The concerns come amid a sharp rise in the spread between French and German government bond yields. The spread between the 10-year French government bond yield and the 10-year German bund yield widened from 55 basis points in late February to 174 basis points on October 22, its highest level since November 2011. It has since narrowed to 154 basis points, the report noted.
The report highlighted France's growing debt burden, with government debt standing at around 119 per cent of GDP, or approximately 3.6 trillion euros. It also pointed to the country's high government expenditure, which has remained above 50 per cent of GDP since 1981 and is currently estimated at 57 per cent.
Another key concern is the extent of foreign ownership of French government debt. According to the report, overseas investors held 58.4 per cent of French long-term general government debt securities outstanding at the end of the second quarter of 2026, the highest share since the first quarter of 2016.
The report also flagged the possibility of Japanese investors selling French bonds as one factor behind the recent market pressure, while clarifying that this was an assessment rather than a confirmed explanation. Japanese institutions, including life insurers, have growing incentives to repatriate overseas investments as domestic bond yields become more attractive.
Political uncertainty ahead of France's presidential elections, scheduled for April and May 2027, has added to investor concerns. The report said the election outlook was one factor behind the upward pressure on French bond yields, although it argued that the country's debt burden and ownership structure posed the more fundamental risk.
It also warned that a French bond crisis would have consequences beyond the country's financial markets, given France's central position in the currency bloc.
“For a French bond crisis means a crisis at the core of the Eurozone,” the report said, adding that a failure to reach an adjustment acceptable to France could lead to more dramatic outcomes, including the end of the euro and a major impact on euro-denominated assets.
The report drew a comparison with the previous Eurozone debt crisis, which was largely confined to peripheral economies such as Portugal, Italy, Greece and Spain. It said the current challenge was different because the vulnerabilities were emerging in the bloc's core economies.
It further cautioned that a crisis involving France could have a wider impact on European markets and investor confidence, making the country's fiscal position an increasingly important risk for the region.
The report noted that the French bond market was now firmly on investors' radar, pointing to the country's high public spending, rising debt and dependence on foreign investors as key vulnerabilities. (ANI)
France's mounting debt crisis raises risk of fresh Eurozone turmoil, warns Jefferies
