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.