Despite the recent surge in French borrowing costs that pushed the country’s 10-year bond yield spread with Germany to a level unseen since the euro zone crisis, analysts are urging calm, saying France is not facing a debt crisis but cautioning that future uncertainties remain.

“The short answer is no, this is not a debt crisis,” said Stephane Colliac, senior economist at BNP Paribas.

France’s effective interest rate is lower than the rising market yields, at slightly above 2 per cent, around the same level as that of the Netherlands, Colliac said, adding that France has faced the same inflation as most advanced economies due to conflicts in the Middle East and higher yields.

French politicians have been worrying about rising debt and a budget deficit, but cutting the deficit has proven difficult in a National Assembly where no political group wields a majority. Since late 2024, discussions over the national budget have led to the collapse of two governments.

France already has the third-highest debt-to-gross-domestic-product ratio in the EU after reaching 117 per cent during this year’s first quarter, behind only Greece and Italy, according to the latest Eurostat data. It rose further to a record level of 119 per cent in September with the government struggling to bring its annual deficit down.

The current crisis was triggered mainly by markets pricing the risks in French domestic politics, according to Alicia Garcia-Herrero, chief economist for Asia-Pacific at French investment bank Natixis. These include the government missing this year’s deficit target, no clear majority in parliament to pass next year’s budget and a presidential election in April, all amplified by higher global yields.

Europe’s second-biggest economy was unlikely to drag the bloc into another Greek-style sovereign debt crisis, she said, due to the differences between the Greek and French economies.

When the government announced the plan for this year, no one expected the war in Iran to break outStephane Colliac, BNP Paribas“Greece lost market access as a small economy with a current-account crisis. France funds itself in euros, has a deep domestic savings base and sits inside the European Central Bank’s framework … The euro zone risk is spillover in spreads if the budget fails, not a Greek-style rescue,” Garcia-Herrero said.

A passed budget for 2027, even a modest one, would help remove a lot of the premium from French yields, she added.

Deutsche Bank’s global head of macro research Jim Reid wrote in a note on Monday that the markets might have “already overshot.”The problem for Paris was its political stalemate, Colliac said. With no clear majority in parliament, he added, it would be difficult for the government to pass a budget that made tough cuts and adhered strictly to its plan to bring the deficit down to 3 per cent. Global uncertainties would also impact its execution.

Analysts also said the debt issue was unlikely to have a major impact on the trade conflict front with China.

France was more vulnerable to interest rate shocks due to its high debt level, but less so to trade shocks, since France’s exports lay in high-value-added sectors such as luxury and aeronautics, according to Colliac.

France running a larger deficit would not change the tools that matter most in practice, such as EU trade defence, regulation and procurement, said Garcia-Herrero. She cautioned that higher interest costs and a tight budget left less room for subsidies and a government tied up in a budget vote was less free to open a second, expensive area of policy action.