French borrowing costs mount on budget tensions
France’s borrowing costs briefly topped those of Greece on Thursday, as political tensions around controversial budget plans mounted.
The country’s 10-year bond yields hit parity with Greece’s early on Thursday morning for the first time. They went on to touch 3.022% before easing back to 2.978%.
Greece’s yields reached 3.013% before falling to 2.987%.
The spread between German and French 10-year yields also rose.
Investors are increasingly concerned France could be engulfed in a political crisis, including the potential unseating of the current government.
Prime minister Michel Barnier - the European Union’s former Brexit negotiator - wants to tackle France’s soaring deficit with €60bn of spending cuts and tax rises. But he does not have a working majority in parliament, and the plans are facing considerable opposition from across the political divide.
Marine Le Pen, leader of the far-right National Rally, this week reiterated her warning she would back a no-confidence vote in Barnier if he pushes through the budget.
The snap general election called by president Emmanuel Macron in June left France with a hung parliament.
Rabobank said: "This could topple both [Barnier’s] government and the budget. The outlook for both is thus highly uncertain."
It continued: "There is a risk that a worsening in the political and budget outcomes in France could spark contagion through the Eurozone. This would be reflected in rising bond yields and in a weaker euro.
"The widened spread between [French] Oats and [German] Bund yields in recent months reflects France’s tarnished image among the investment community."
Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said: "The worsening political scene in France and the widening yield gap between France and Germany could limit the single currency’s upside potential, along with clashing opinions from European Central Bank members about how fast the bank should cut rates."
Barnier was named prime minister by Macron in September.