The French Treasury had to sharply increase the interest rate offered in its latest sale of benchmark government bonds on Thursday, highlighting the stakes in a fierce budget and deficit debate ahead of next year’s presidential debate.
The rate on the sale of 10-year OAT bonds rose to 4.23 percent at the monthly auction, up sharply from the 3.90 percent offered in August and the highest rate since 2008 during the global financial crisis.
It was also a steep increase from the 3.45 percent seen just seven months ago in February, before the US and Israel launched airstrikes against Iran.
Since then surging energy prices have raised fears that central banks worldwide will have to raise interest rates to cool inflation.
Government bond yields have spiked in response as investors demand a higher payout for lending governments money.
The bond sale puts further pressure on Prime Minister Sebastien Lecornu as he tries to negotiate steep spending cuts for next year’s budget, aiming to reduce a deficit that reached 5.1 percent of GDP last year — one of the highest in the eurozone and above the three-percent limit set for EU members.
France’s debt meanwhile stands at 117.5 percent of its GDP, a level not seen since the end of World War II and nearly double the 60 percent limit set by the bloc’s Stability and Growth Pact.
Meanwhile the yields on French government debt traded on bond markets recently rose above those of Greece, which required the biggest EU bailouts after the 2008 global financial crisis.
On Thursday the French 10-year yield was at 4.223 percent compared to 4.057 for the Greek bond, a reflection of investors doubts about the sustainability of France’s debt load.
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