London, 30 September 2026 — EBM Newsdesk Analysis — By Anthony Gill
On Wednesday, 30 September, Vanguard told the Financial Times that France is likely to face even higher borrowing costs as its credit keeps deteriorating. Ales Koutny, Vanguard’s head of international rates, called France a “long-term degrading credit”. He warned that demand in debt markets can disappear once a country becomes the centre of stress. France’s 10-year borrowing cost has risen from 3.2% to above 4.8% since the Iran war began, the biggest jump in the G7. When one of the world’s largest bond buyers says that about the eurozone’s second-largest economy, other investors listen.
This is now Europe’s problem, not just France’s. France has taken Italy’s old role as the eurozone’s biggest source of bond-market anxiety. Markets now demand more to lend to France than to Italy or Greece, the two countries most associated with the last euro crisis. Every point of extra French borrowing cost feeds into French mortgages, company loans and bank balance sheets. It also tests how far the ECB will go to protect a member that won’t fix its own finances.
The Numbers Behind the Warning
The debt keeps climbing. France’s finance ministry expects public debt to hit a record 119.3% of GDP this year and 121.7% next year. The deficit is running at 5.4% of GDP, nearly double the EU’s 3% limit.
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SubscribeThe borrowing is getting bigger too. France’s debt agency plans to sell a record €340bn of medium- and long-term bonds next year, about 10% more than in 2026. Rating agency Scope cut France to A+ from AA- earlier this month.
The gap with Germany tells the story. France’s bond premium over Germany has crossed one percentage point for the first time since the 2012 debt crisis. Koutny says it could pass 1.5 points if things get worse, and he compares the situation with Italy’s market turmoil after its 2018 election.
Why Foreign Money Matters
The most worrying detail is who owns French debt. According to HSBC, more than half of French government bonds are now held by non-domestic investors. Foreign investors are the least loyal kind. Japanese pension funds and American asset managers have no national duty to hold French bonds. When they lose patience, they sell.
That is exactly Vanguard’s warning. The risk is not a slow drift higher in yields. It is a sudden gap in demand when the buyers who have been quietly funding France decide the price is no longer worth it.
Politics Is the Problem
France’s finances are weak because its politics are stuck. Prime Minister Sébastien Lecornu wants €54bn of savings in the 2027 budget. He faces a divided parliament, a vote on 17 November and a record of governments falling over exactly this issue.
Beyond the budget sits the 2027 presidential election. Marine Le Pen is the frontrunner, and neither leading camp is campaigning on the spending discipline the bond market wants. Even the question of who runs Frankfurt is tangled up in it, given the politics of Lagarde’s succession.
Don’t Count on Frankfurt
Investors hoping the ECB will step in may be disappointed. France’s own central bank chief has said it cannot rely on the ECB to fix its debt problems. The ECB is busy fighting eurozone inflation driven by the energy shock, and buying French bonds now would look like rescuing a government that refuses to help itself. The ECB is building safety nets for the euro abroad. At home, it wants governments to fix their own finances. And with global appetite for government debt already weakening, France is competing for buyers in a hard market.
My Read
Vanguard is not predicting a French default, and neither am I. France is rich, has deep domestic savings and remains at the heart of the euro. But “degrading credit” is the right description. France borrows more each year, pays more each year, and has no political majority willing to change course. That can continue for a long time, until one day it can’t. The warning signs are the same ones Italy showed in 2018. The difference is that France is too big to rescue quietly.
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