France's debt crisis: Is there a risk of a new euro crisis?

Analysis Interest rate pressure on Paris is increasing Is there a risk of a new euro crisis because of France? As of: October 23, 2026 • 11:13 a.m

France's bond yields have risen to their highest level since 2002. How great is the risk of infection for other heavily indebted Euro countries - and what can the ECB do about it?

France is coming under increasing pressure on the financial markets. The risk premium for French government bonds compared to German federal bonds rose this week to around 1.6 percentage points - the highest level in 15 years. The next bad news is already imminent on Friday evening after the stock market closes: The rating agency Moody's could then downgrade France's creditworthiness - this is what many economists expect.

Because France's mountain of debt continues to grow, while the political crisis in Paris makes austerity measures more difficult. Volker Schilling from the asset manager Greiff Capital speaks to the ARD financial editorial team of a "trilemma": France has to decide between its welfare state, higher defense spending and debt sustainability. "All three won't work. You will have to set priorities - and the market will force that."

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Figures from the International Monetary Fund (IMF) show how difficult the initial situation is. Accordingly, French national debt is expected to rise to 118.5 percent of economic output in 2026. For comparison: At the beginning of the euro debt crisis in 2010, it was still around 86 percent.

The country is also one of the eurozone's problem cases when it comes to budget deficits. The IMF expects a decline of around 5.4 percent in economic output this year - far more than the three percent generally permitted under European rules. Higher yields make it more expensive to take on new debt and refinance maturing bonds.

A possible downgrade by Moody's could put France under additional pressure on the bond markets. This week, ten-year French government bonds temporarily yielded more than five percent for the first time since 2002.

But that is not a reason to panic, emphasizes Stephan Kemper, chief capital market strategist at BNP Paribas Wealth Management, in an interview with the ARD financial editorial team. "What we are experiencing here is not a systemic crisis of the euro, but rather a very clear message from the market to a specific country."

In fact, investors make clear distinctions between the individual euro countries. France currently has to offer even higher interest rates than Italy - a remarkable reversal of roles in the bond markets.

During the euro crisis from 2010 to 2012, Greece, Portugal, Spain and Italy were particularly under pressure. Germany and France, on the other hand, formed the stable core of the monetary union. Today, of all things, the second largest economy in the Eurozone has itself become a problem child. Capital market expert Schilling is therefore convinced: "The new periphery of the Eurozone begins at the Seine."

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But the initial situation differs from back then in one crucial point: in the last euro crisis, investors feared that individual countries could leave the monetary union and that the euro could possibly break up.

"Fifteen years ago, the existence of the euro was openly questioned. This is something that we don't see at all today and that is not priced into the market at all," emphasizes capital market strategist Kemper. Even on the political fringes of France there is a broad consensus to stay in the euro.

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Three words became the turning point of the Euro crisis at the time: “Whatever it takes.” On July 26, 2012, then ECB President Mario Draghi promised to do everything necessary within the mandate of the central bank to preserve the euro. This announcement alone played a decisive role in calming the markets. A few weeks later, the ECB presented its OMT bond purchase program. It was never actually used.

Since then, the Eurozone has become noticeably more resilient. European banks have higher capital buffers. The risk of contagion effects through the banking sector is now significantly lower, says Kemper.

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The ECB's instruments for combating crises are also larger today than in 2010. In the summer of 2022, the central bank decided on the Transmission Protection Instrument, or TPI for short. This means it can buy government bonds from a eurozone country that is in distress on the markets without a predetermined upper limit.

But according to experts, such a relief for France is currently not in sight. “I think we are very, very far away from a new whatever-it-takes moment, and the TPI crisis instrument will certainly remain on the shelf for the time being,” says BNP chief strategist Kemper.

The prerequisite for the use of TPI is that the financing conditions in a member country deteriorate massively, without this being justified by country-specific fundamental data. It would therefore have to be a speculative market exaggeration through no fault of the country. “These conditions are apparently not met in France at the moment,” emphasizes Kemper.

In addition, if the ECB were to rush to France's side, this would also reduce the pressure on the government in Paris to introduce austerity measures. It would also be a fatal signal to other governments in the euro area that they can count on help from the central bank even if they have problematic budget policies.

Schilling from the asset manager Greiff Capital therefore warns: "It would not be good for the whole of European stability if you immediately call the fire brigade at every small sign of trouble."

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However, if Paris fails to get its public finances under control and yields continue to rise unabated, the ECB could still come under pressure to act. Investors shouldn't underestimate one thing, says Schilling: "That the euro area is a politically driven construct that will definitely not be given up - and certainly not the large economies of France and Germany, which have always been the driving force behind this monetary union."

But it is also a fact: The ECB's emergency programs are primarily intended to combat unjustified market distortions - not the consequences of a failed budget policy. There would probably have to be significantly more stress on the markets before the ECB would resort to such drastic rescue measures. The high bond yields are therefore primarily a warning signal for France: it is now important for Paris to regain investor confidence. And better sooner than later.

This topic in the program: tagesschau.de | Because of France: Is there a threat of a new euro crisis? | Oct 22, 2026 | 3:00 p.m