The euro fell to its lowest level against the dollar since May 2025 on Monday as investors reacted to rising French borrowing costs, political uncertainty and doubts over Paris’s ability to stabilise its public finances before next year’s presidential election.

The euro fell to a 17-month low against the US dollar on Monday as renewed pressure on French government debt raised concern over the fiscal position of the eurozone’s second-largest economy.

The single currency dropped as far as $1.116 during trading, its weakest level since May 2025, before recovering part of the fall. By late Monday it was trading at around $1.121, still lower on the day.

The move followed a sharp sell-off in French government bonds and a widening gap between French and German borrowing costs.

According to market data published on Monday, the spread between French government debt and equivalent German Bunds had approached 160 basis points on Friday, its widest level since the eurozone sovereign-debt crisis in 2011.

The gap subsequently narrowed, but the scale of the movement has drawn attention back to France’s public finances.

French debt is already close to 120 per cent of gross domestic product and is expected to continue rising.

Investors are now assessing whether Prime Minister Sébastien Lecornu’s minority government can secure sufficient parliamentary support for measures intended to put the budget on a more sustainable path.

That challenge is becoming more difficult as France approaches its 2027 presidential election.

Spending cuts and tax increases are politically sensitive even under stable parliamentary conditions. Lecornu’s administration does not have an outright majority in the National Assembly, while opposition parties have challenged several elements of the government’s fiscal programme.

The French economy itself is providing little additional room.

Revised national accounts examined by EU Today showed that the economy failed to grow during the second quarter, while household purchasing power weakened and investment declined.

Slower growth makes deficit reduction harder because tax revenues tend to grow more slowly while welfare and debt-servicing costs remain high.

Bond markets have also changed the calculation.

For much of the period following the eurozone debt crisis, France was able to borrow at historically low rates. Higher interest rates now mean maturing debt has to be refinanced at greater cost.

France’s debt burden is therefore rising at the same time as the price of servicing it increases.

The euro’s fall on Monday shows that those concerns are no longer confined to the French bond market.

Currency traders are also assessing whether fiscal pressure in France could affect confidence in the wider euro area.

The comparison with the sovereign-debt crisis of 2010–12 should nevertheless be treated cautiously.

France remains one of Europe’s largest and most diversified economies, and the eurozone now has institutional mechanisms and European Central Bank instruments that did not exist at the beginning of the earlier crisis.

There is also no indication that France is unable to finance itself.

What markets are pricing is an increase in the risk attached to holding French debt and growing uncertainty over the country’s medium-term fiscal trajectory.

The euro has now fallen for four successive weeks against the dollar and has lost more than three per cent over that period.

US monetary policy is contributing to the movement. Persistent inflation indicators have supported the dollar even as expectations of an immediate Federal Reserve interest-rate increase have declined.

For Europe, however, Monday’s trading was dominated by France.

French fiscal policy has been a domestic political dispute for much of the past year. The widening bond spread and the euro’s fall show that it is increasingly becoming a eurozone market issue.

France and Germany have proposed giving the European Commission powers to respond within days to serious trade distortions, including the possibility of restricting access to the EU single market. The initiative comes as European concern grows over Chinese subsidies, industrial overcapacity and dependence on critical imports.

French President Emmanuel Macron and German Chancellor Friedrich Merz have called for a new European Union trade instrument capable of acting rapidly against countries whose economic practices cause serious disruption to the European market.

In a joint initiative sent to European Commission President Ursula von der Leyen on Monday, the two governments proposed strengthening the EU’s ability to respond to what they describe as systemic market distortions, including dumping, widespread subsidies and restrictions affecting access to critical supplies.

The Franco-German proposal does not formally identify China as its target. However, many of the practices it describes correspond directly to long-standing European concerns over Chinese industrial policy, including excess manufacturing capacity, state support and restrictions on exports of critical minerals.

The initiative represents a further development in a harder European approach towards Beijing. EU Today reported last week that China had warned it would respond if the EU introduced new restrictions against Chinese companies or products.

Macron and Merz are proposing two additional instruments.

The first would be intended to reduce European companies’ dependence on single suppliers for strategically important products and raw materials. The second would allow the EU to restrict access to its internal market when a third country uses political or economic measures that seriously undermine fair competition.

Under the proposal, the Commission could initiate countermeasures unless a qualified majority of EU governments voted to block them. That would reverse the normal political dynamic in which Brussels must first secure sufficient support before acting.

German officials have argued that the EU needs powers comparable in effect to the United States’ Section 301 trade measures or China’s ability to restrict exports of critical raw materials.

The Commission has welcomed the Franco-German intervention as a contribution to its work on economic security and global trade imbalances. Any new instrument would, however, require legislation and approval by both EU governments and the European Parliament before it could be used.

The proposal comes amid growing concern in both Paris and Berlin over the effect of subsidised Chinese production on European manufacturers.

Germany’s position is particularly significant. Berlin has traditionally been more cautious than Paris about measures that could restrict trade with China, reflecting the importance of the Chinese market to German carmakers, engineering companies and chemical producers.

That position has shifted as German industry faces increased competition from Chinese electric vehicles, machinery and other manufactured goods.

EU Today has previously examined the emerging Franco-German alignment on tougher China trade defences and demands from German manufacturers for broader European action rather than product-by-product investigations.

The new proposals go considerably further by seeking a mechanism capable of dealing with entire sectors and acting much more quickly than conventional anti-dumping proceedings.

Chemicals, PET plastics and hybrid vehicles are among sectors identified in the Franco-German document as areas where additional action may be required.

The timing is also significant. EU leaders are due to discuss trade relations with China at their summit in Brussels on 15–16 October, while Trade Commissioner Maroš Šefčovič is expected to hold talks with Chinese officials beforehand.

The Commission is already attempting to balance two objectives: maintaining Europe’s access to the Chinese market while reducing strategic dependencies that could be used as political leverage.

The Franco-German plan would give Brussels another instrument at the more coercive end of that policy. Its eventual importance will depend on whether governments agree to create it and how readily they would permit the Commission to use it against a major trading partner.

Italy expects its budget deficit to rise above the European Union’s three per cent reference level again next year as Giorgia Meloni’s government uses new EU fiscal flexibility to finance defence and measures responding to higher energy costs.

Rome’s latest multi-year fiscal projections put the 2027 deficit at 3.4 per cent of GDP, substantially above the previous target of 2.8 per cent.

The increase follows a planned fall to 2.9 per cent this year, which would bring Italy below the EU’s three per cent threshold for the first time since 2019. The deficit stood at 3.1 per cent in 2025.

The change reflects Italy’s decision to use the EU’s national escape clause, allowing member states under specified conditions to deviate temporarily from their agreed expenditure paths.

Under the latest projections, Rome intends to use fiscal flexibility worth 0.6 per cent of GDP in both 2027 and 2028 for defence and energy-related spending. The additional expenditure amounts to roughly €29 billion across the two years, while the deficit is projected at 3.2 per cent in 2028.

The decision turns a long-running dispute over fiscal flexibility into a test of the EU’s revised budget framework.

The national escape clause was introduced in the 2024 reform of the Stability and Growth Pact. It permits a member state to deviate temporarily from its fiscal path when exceptional circumstances outside its control have a major effect on public finances, provided medium-term fiscal sustainability is not endangered.

The mechanism was subsequently used to give governments greater room to increase defence spending. In 2026, the Commission also moved to broaden its application to energy-security expenditure.

Italy has been among the governments pressing hardest for such flexibility.

In August, EU Today reported that Rome intended to use the available fiscal room fully for energy measures but only partly for defence. The decision illustrated the competition between longer-term military investment and the immediate political pressure created by household and industrial energy bills.

The latest projections make that trade-off larger.

Italy’s annual inflation rate increased to 4.1 per cent in September, from 3.2 per cent a month earlier. Meloni has sought additional room from Brussels to cushion the economic effect of elevated energy costs.

At the same time, the government has improved its growth forecasts.

GDP is now expected to expand by one per cent in 2026, compared with an earlier projection of 0.6 per cent. Growth for 2027 has been revised from 0.6 to 0.8 per cent.

Those figures provide some additional room, but Italy’s debt remains the larger constraint.

Public debt is projected to rise from 138.1 per cent of GDP this year to 138.5 per cent in 2027 before edging down to 137.9 per cent in 2028. The government now expects the debt ratio to begin falling a year later than previously planned.

That leaves Rome in an unusual position. It expects formally to bring its underlying deficit below the EU threshold while headline borrowing rises above three per cent once exceptional spending is included.

Economy Minister Giancarlo Giorgetti has said Rome is discussing with the European Commission how the calculation will affect Italy’s attempt to leave the EU’s excessive deficit procedure.

The Commission will therefore have to judge not only Italy’s fiscal trajectory but how extensively exceptional expenditure can be accommodated under rules Brussels itself has made more flexible.

That question has already generated concern.

EU Today reported last month that the European Fiscal Board had warned that exceptions were beginning to weaken the clarity of the revised rules. The watchdog has been particularly critical of allowing room initially associated with higher defence spending to be extended to energy-resilience measures.

Italy provides one of the clearest examples of the problem.

Rome is trying simultaneously to increase military capacity, protect households and businesses from energy costs and demonstrate that its very high debt remains manageable.

It has also argued that European rearmament cannot proceed unless governments have sufficient room to finance it. The same tension emerged in Italy’s debate over participation in the EU’s SAFE defence loan programme.

The EU has given governments more flexibility to manage those competing demands. Italy’s 2027 budget will show how far that flexibility can stretch before the argument returns to the credibility of the fiscal rules themselves.

Beijing has opened an anti-dumping investigation into a chemical imported from the European Union days before EU Trade Commissioner Maroš Šefčovič travels to China for talks covering trade imbalances, market access and strategic raw materials.

China has opened a new anti-dumping investigation into imports from the European Union less than a week before EU Trade Commissioner Maroš Šefčovič is due in Beijing for talks on the increasingly difficult trade relationship between the two sides.

China’s Ministry of Commerce announced on Saturday, 3 October, that it was beginning an investigation into p-nitrotoluene, also known as 4-nitrotoluene, imported from the EU.

According to the official notice opening the investigation, the case follows an application submitted on 14 September by Chinese producers Jiangsu Huaihe Chemical and Hubei Dongfang Chemical. The investigation will examine alleged dumping between 1 July 2025 and 30 June 2026, while the assessment of possible damage to Chinese industry will cover January 2022 to June 2026.

P-nitrotoluene is used in the production of dyes, pharmaceuticals, pesticides, pigments and other chemical products.

In isolation, the investigation concerns a relatively specialised industrial product. Its timing, however, places it inside a much wider argument over the future of EU-China trade.

Šefčovič is expected in China on 8 and 9 October for the second high-level meeting under the EU-China trade and investment consultation mechanism established earlier this year.

The European Commission confirmed in September that the meeting would address Chinese exports to the EU, European access to the Chinese market and restrictions affecting rare-earth supplies. Brussels said it expected the October talks to produce the first concrete results from work undertaken since the mechanism was established. The Commission outlined the agenda following a September call between Šefčovič and Chinese Commerce Minister Wang Wentao.

EU Today reported in September that Šefčovič had warned China that the EU could consider tougher measures if the negotiations failed to produce tangible progress by October.

The deadline followed talks between Šefčovič and Wang in Brussels in June. At the time, the two sides agreed to establish working groups dealing with trade and investment balances, export controls, intellectual property and World Trade Organisation reform.

EU Today examined those negotiations in detail as Brussels sought progress on rare earths, market access and the widening trade imbalance.

The numbers remain a central part of the European argument.

According to Eurostat’s figures for EU-China trade in 2025, the EU imported €559.4 billion in goods from China while exporting €199.6 billion, leaving a trade deficit of €359.8 billion. EU exports to China fell by 6.5 per cent compared with 2024, while imports increased by 6.4 per cent.

Brussels argues that the imbalance cannot be viewed separately from questions of industrial subsidies, excess manufacturing capacity and barriers encountered by European companies seeking access to the Chinese market.

Beijing rejects the suggestion that the growth of Chinese exports is principally the result of unfair state support and has criticised the EU’s expanding use of trade-defence instruments.

The confrontation now covers a growing range of industries.

The EU has imposed additional duties on Chinese electric vehicles following an anti-subsidy investigation, while disputes have extended to medical devices, public procurement and agricultural products. China, meanwhile, has launched investigations affecting European products including brandy, pork, dairy goods and chemicals.

Rare earths have become particularly important.

European industry remains heavily dependent on Chinese supplies and processing capacity for materials used in permanent magnets, electric vehicles, wind turbines, electronics and defence equipment.

Eurostat reported in June that China supplied 46.8 per cent of EU rare-earth imports by weight in 2025. The concentration is greater in some processing stages and manufactured components.

EU Today has followed the issue closely, including the Commission’s preparations for possible renewed Chinese rare-earth restrictions and the EU Today Research Desk’s assessment of Europe’s exposure to Chinese rare-earth supply chains.

Following the June negotiations, Šefčovič said China had given assurances that export controls on rare earths and permanent magnets should not interrupt European supply chains. He nevertheless sought improvements to the licensing system faced by EU companies. The Commissioner said at the time that Beijing would be expected to demonstrate tangible progress by October.

That point has now arrived.

Neither Brussels nor Beijing has indicated that the broader commercial relationship is heading towards disengagement. China remains the EU’s largest source of imported goods and the European market remains commercially important to Chinese exporters.

But both sides are increasingly prepared to use trade-defence measures when negotiations fail to resolve disputes.

Saturday’s anti-dumping investigation consequently adds another issue to Šefčovič’s agenda days before he arrives in Beijing — and provides an early indication of the atmosphere surrounding the October talks.

China has warned that it will respond if the European Union introduces new trade restrictions targeting Chinese companies or products, as France and Germany push for stronger European instruments to address what they regard as unfair commercial practices.

China’s Ministry of Commerce issued the warning after reports that several EU governments were discussing a mechanism modelled partly on Section 301 of US trade law, which allows Washington to investigate foreign trade practices and impose countermeasures.

Beijing described such an approach as protectionist and unilateral and warned that it could damage continuing negotiations between China and the EU.

“If the European side insists on introducing discriminatory restrictive measures against Chinese companies or products,” the ministry said, China would “resolutely respond” to defend the interests of its industries.

The warning comes as Europe’s trade relationship with China is moving further up the political agenda.

According to the European Commission’s latest EU-China trade figures, EU exports to China were worth €199.5 billion in 2025 while imports reached €559.5 billion.

The goods deficit stood at €359.9 billion, compared with €312.2 billion in 2024.

China remained the EU’s largest source of goods imports and its fourth-largest export market.

Brussels argues that the scale of the imbalance is connected not only to competitiveness but also to state support, market-access restrictions and other structural differences between the two economies.

China disputes that assessment and has repeatedly accused the EU of using industrial and security arguments to justify protectionism.

The argument is already visible in several industries.

The EU imposed countervailing duties on Chinese battery electric vehicles after an investigation concluded that state subsidies were giving Chinese manufacturers an unfair advantage in the European market.

Brussels has subsequently widened its attention to other parts of the automotive industry. Earlier this month, EU Today reported that the EU was considering restrictions affecting Chinese hybrid cars as policymakers looked for ways to contain the growing trade imbalance.

The automotive dispute is important because Europe is simultaneously trying to attract Chinese manufacturing investment.

France and Spain addressed that question during President Emmanuel Macron’s state visit to Madrid.

Macron and Spanish Prime Minister Pedro Sánchez agreed on the need for greater European unity in responding to Chinese competition. They also discussed whether Chinese investors entering strategically important European industries should be required to provide stronger commitments on issues such as technology transfer.

Macron said that companies on both sides of the Pyrenees needed protection when they faced unfair competition and argued that “the only response that works is European.”

France has generally favoured stronger European trade defences.

Germany has traditionally approached the issue more cautiously because major German manufacturers have substantial commercial exposure to China. Increasing competition from Chinese producers, particularly in industrial sectors where German companies were once dominant, has altered the debate.

Reports that Berlin and Paris are now working together on a stronger trade instrument therefore suggest a potentially important shift.

The two countries are said to be considering a European mechanism inspired by the American Section 301 process, although no final proposal has yet been adopted by the European Commission.

EU trade law already provides several instruments.

Brussels can impose anti-dumping or anti-subsidy duties following investigations, use the Foreign Subsidies Regulation to examine state-backed investment and procurement, and deploy the Anti-Coercion Instrument where another country uses economic pressure against the EU or a member state.

The discussion now concerns whether those instruments are sufficient when governments believe a problem extends across industries rather than affecting an individual product.

The debate comes only weeks after EU Today reported that Brussels was preparing additional pressure on Chinese hybrid-car imports, demonstrating how quickly EU-China trade disputes are expanding beyond the original electric-vehicle case.

At the same time, Brussels and Beijing have established a Trade and Investment Consultations mechanism, with workstreams covering trade balances, export controls, intellectual property and World Trade Organisation reform.

China’s Commerce Ministry has warned that introducing tougher measures while those talks continue would damage trust.

That leaves the EU facing two parallel choices: continue negotiations intended to narrow the trade dispute while also developing stronger instruments in case those negotiations fail.

France and Germany are increasingly arguing that Europe needs greater leverage.

Beijing’s response is that using that leverage against Chinese companies would bring countermeasures.

The next stage will depend on whether the Franco-German proposal develops into a formal EU initiative. If it does, the dispute will move beyond duties on particular products towards a broader argument over how Europe intends to manage its economic relationship with China.

The European Investment Bank and BNP Paribas have agreed a €700 million guarantee programme designed to expand financing for European companies producing equipment for electricity grids.

The agreement targets a growing bottleneck in Europe’s energy system: manufacturers of transformers, cables, switchgear and other components are being asked to increase production while utilities and governments accelerate investment in transmission and distribution networks.

Under the deal, the EIB will provide up to €350 million in counter-guarantees, while BNP Paribas will commit an equivalent amount. The resulting €700 million portfolio of bank guarantees is expected to support companies investing in additional production capacity and supply contracts.

The European Investment Bank said the arrangement could stimulate as much as €2.8 billion in investment in the real economy.

The initiative is backed by the EU’s InvestEU programme and forms part of the EIB’s €1.5 billion Pan-EU Power Grid package. Guarantees are particularly important for infrastructure suppliers because large electricity projects often require manufacturers to provide financial guarantees before receiving contracts.

Those commitments can consume bank credit lines that companies might otherwise use to build factories, purchase machinery or finance working capital.

By sharing the risk with BNP Paribas, the EIB intends to increase the volume of guarantees available without requiring manufacturers to commit equivalent amounts of their own financing capacity.

The programme arrives as grid investment becomes one of the central constraints on European energy policy.

The EU is simultaneously attempting to expand renewable generation, electrify transport and industry, increase cross-border electricity trading and reduce dependence on imported fossil fuels.

All require additional transmission and distribution capacity. EU Today reported earlier this year that the EIB had approved almost €2 billion for clean energy and grid projects as part of a broader €10 billion financing package.

The latest BNP Paribas agreement concentrates specifically on the industrial supply chain needed to build those networks.

Grid investment is increasingly influenced by security concerns as well as electricity demand.

EU Today reported last week that Lithuania is designing part of the Harmony Link infrastructure to withstand drones, sabotage and vehicle attacks near the Russian exclave of Kaliningrad. Such requirements increase the cost and complexity of new electricity infrastructure while demand for conventional grid equipment is already rising.

European manufacturers face lengthy order books for some high-voltage equipment, particularly large transformers and specialised cables. Supply constraints can delay renewable projects and interconnectors even when planning permission and financing are available.

The EIB says its guarantee programme is intended to give manufacturers greater financial capacity to respond. The arrangement follows a similar partnership between the bank and BNP Paribas covering wind-energy manufacturing.

In February 2025, the two institutions agreed a €1 billion guarantee portfolio intended to support investment in the European wind industry. The EIB has subsequently expanded its focus from generation equipment to the networks required to transport electricity.

In 2025, the EIB Group invested €33 billion in energy projects worldwide, including €11.6 billion in grids and storage, according to the institution.

European energy policy has increasingly recognised that adding generating capacity without expanding grids can create congestion, delays and periods in which renewable electricity cannot reach consumers.

Political disagreements remain over how new infrastructure should be planned and financed.

In June, EU Today reported that member states had pushed back against stronger Brussels control over cross-border grid planning, preferring to preserve a significant role for national authorities.

Financing institutions are meanwhile moving ahead with programmes intended to expand the underlying industrial capacity.

For manufacturers, the EIB–BNP Paribas scheme does not provide €2.8 billion of direct public spending. Instead, public guarantees are being used to increase the volume of private financing available, with the EIB assuming part of the risk.

The distinction is central to InvestEU, which uses EU budget guarantees and EIB financing to attract additional private capital.

Europe’s electricity transition is increasingly dependent on this less visible part of the energy system. New wind farms, solar installations, nuclear reactors and industrial electrification projects ultimately require the same infrastructure: sufficient cables, substations, transformers and transmission capacity to move electricity from producers to users.

France has called for money collected through European Union fines against Google to be used to reduce national contributions to the EU budget as governments negotiate the bloc’s next seven-year financial framework.

Europe Minister Benjamin Haddad said proceeds from penalties imposed on the US technology company should be treated as EU revenue and used to lower the sums governments must pay into the common budget.

The proposal comes as negotiations intensify over the 2028–34 Multiannual Financial Framework, for which the European Commission has proposed expenditure of almost €2 trillion.

Haddad referred to about €4.6 billion in revenue associated with Google penalties and interest.

The proposal is less radical in budgetary terms than it first appears because fines that become final already enter the EU budget as “other revenue”.

The Commission’s explanation of EU budget revenue states that gross national income-based contributions act as the balancing element of the budget after customs duties, VAT-based resources and other revenues — including fines on companies — are taken into account.

Higher income from definitive competition fines can therefore reduce the amount required from national governments.

France is pressing for that mechanism to be applied clearly to the Google proceeds at a time when governments are seeking ways to limit increases in their national payments.

Google has accumulated substantial EU penalties through both competition law and the Digital Markets Act.

In July, the European Commission fined Google €890 million under the Digital Markets Act in two separate decisions.

A €460 million penalty concerned the Commission’s finding that Google gave preferential treatment to its own services in search results. A further €430 million fine concerned restrictions affecting developers’ ability to direct users towards alternative purchasing channels outside Google Play.

Google has contested elements of the EU enforcement regime and has continued legal proceedings over Commission decisions.

EU Today has followed the dispute closely. In September, Google began changing European search results following the DMA enforcement action, while earlier Commission measures generated a wider dispute with Washington over European regulation of US technology groups.

The French budget proposal shifts the issue from regulation towards public finance.

EU governments are currently divided over the Commission’s proposed 2028–34 budget, which averages about 1.26 per cent of EU gross national income.

Germany, Denmark, Finland, the Netherlands and Austria are among governments seeking substantial reductions in the proposed spending level.

EU Today reported this month that five large net contributors were demanding cuts of several hundred billion euros from the Commission proposal.

France also faces a sharp increase in its projected contribution.

Against that background, governments are looking at both expenditure reductions and new revenue streams that could limit demands on national treasuries.

The wider negotiations cover possible EU “own resources” — revenue that flows directly or indirectly to the European budget rather than being provided through conventional national contributions.

Existing resources include customs duties, a VAT-based contribution, a plastics contribution and national payments calculated according to gross national income.

The Commission has also proposed additional sources linked to carbon pricing and other EU policies.

EU Today has previously examined how EU leaders are searching for new revenue sources for the €2 trillion budget while attempting to finance defence, competitiveness, migration, agriculture, cohesion programmes and support for Ukraine.

Company fines differ from permanent own resources because their size is unpredictable and depends on enforcement decisions and subsequent legal proceedings.

A large fine can provide a one-off boost to EU revenue, but it cannot readily finance recurring expenditure across a seven-year financial framework.

Definitive fines have nevertheless affected member-state contributions before. Commission budget amendments have explicitly incorporated competition penalties as additional revenue, reducing the amount that must be raised elsewhere.

France is now seeking to ensure that the Google proceeds are reflected directly in the sums demanded from national budgets.

The proposal comes before another round of negotiations over the Multiannual Financial Framework, where the size of the budget remains unresolved.

With agreement requiring unanimity among all 27 governments, even relatively small sources of additional revenue are becoming part of the bargaining over who ultimately pays for the EU’s expanding spending commitments.