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France’s government debt has climbed to nearly 119% of GDP, while rising bond yields, heavy foreign investor exposure and political uncertainty ahead of the 2027 presidential elections are fuelling fears of a fresh financial crisis at the heart of the Eurozone.
France’s mounting government debt and rising borrowing costs could trigger a fresh financial crisis in the Eurozone, with potential spillover effects threatening the stability of the single currency, according to a report by global investment bank Jefferies.
In its report titled ‘From the periphery to the core’, Jefferies warned that France’s growing debt burden and the ownership structure of its government bonds could make a renewed Eurozone debt crisis a realistic possibility over the next year, particularly if bond yields remain elevated.
The warning comes amid a sharp widening of the gap between French and German government bond yields, reflecting growing investor concerns over France’s fiscal health.
The spread between the 10-year French government bond yield and its German counterpart widened from 55 basis points in late February to 174 basis points on October 22, its highest level since November 2011. It has subsequently narrowed to 154 basis points, the report said.
France’s government debt currently stands at around 119 per cent of GDP, equivalent to approximately 3.6 trillion euros. The country’s high public expenditure has further compounded concerns, with government spending remaining above 50 per cent of GDP since 1981 and currently estimated at 57 per cent.
More from BusinessAnother major vulnerability is France’s growing dependence on overseas investors to finance its debt.
Foreign investors held 58.4 per cent of France’s outstanding long-term general government debt securities at the end of the second quarter of 2026, the highest proportion since the first quarter of 2016, according to the report.
Jefferies also flagged the possibility of Japanese investors selling French government bonds as a potential source of recent market pressure. However, it clarified that this was an assessment rather than a confirmed explanation.
Japanese financial institutions, particularly life insurers, are increasingly facing incentives to bring overseas investments back home as domestic bond yields become more attractive.
Political uncertainty is adding another layer of risk. France is scheduled to hold presidential elections in April and May 2027, with the political outlook emerging as one of the factors weighing on investor sentiment and pushing borrowing costs higher.
However, Jefferies argued that France’s underlying debt burden and dependence on foreign investors pose more fundamental risks than the immediate political uncertainty.
The report warned that a French bond market crisis could have consequences extending far beyond the country’s financial system because of France’s central position in the Eurozone.
Unlike the previous Eurozone sovereign debt crisis, which was largely concentrated in peripheral economies such as Portugal, Italy, Greece and Spain, the current vulnerabilities are emerging within the currency bloc’s core.
A crisis involving France could therefore pose a much greater challenge to European financial stability and investor confidence.
Jefferies cautioned that an inability to reach a fiscal adjustment acceptable to France could produce more dramatic consequences, potentially threatening the future of the euro and significantly affecting euro-denominated assets.
The report said France’s high public spending, mounting debt and reliance on foreign investors have increasingly placed its government bond market under investor scrutiny.
