French borrowing costs are surging and central bankers are starting to fret. Some of them, at least.

The head of the French central bank, Emmanuel Moulin, told the Financial Times that his country risks being “strangled by interest rates”.

The best solution, he made clear, was for the French government to cut costs and reduce the deficit, which, in an unchanged scenario, could reach upwards of six percent next year.

Last week, the French minority government proposed €43bn worth of cuts for 2027. But pushing them through parliament is a tall order in a divided country.

Meanwhile, investors are dumping French bonds, pushing up French government borrowing costs compared to German benchmark Bunds. This is already immensely costly to French society.

“In three weeks, we’ve lost the equivalent of €15bn a year in higher debt-servicing costs over a 10-year horizon, or almost €100bn cumulatively over 10 years!”, French economist Shahin Vallée said on social media last week.

The gap, or spread, between French and German bond yields, historically around 50 basis points (0.5 percentage points), was 109 basis points when he wrote it on Wednesday. It is now 30 points higher.

Spreads are a crucial marker for financial stability because they show how nervous investors are. The bigger the spread, the higher the perceived risk.

And France’s parabolic bond spread is already bringing back unwelcome memories of the eurozone crisis in November 2011, when the spread reached 200 basis points.

Bypass parliament?

The question is what to do about it, and who is best positioned to act. The French government could bypass a parliamentary vote or push through the budget by ordinance, under articles 49.3 and 47 of the constitution, respectively.

This article continues, but the full version is available only to EUobserver.com subscribers. Visit account.euobserver.com/membership

The EU has decided to delay its methane regulation, and the reason is simple enough. 

Europe imports almost 90 percent of its gas, which makes it one of the most exposed buyers in the world. And the US-Israeli war with Iran has choked gas flows through the Strait of Hormuz. 

Making matters more complicated is the fact that Europe is still phasing out Russian gas, with a total ban on Russian overseas liquified gas due to be implemented next year.

So few were surprised when energy commissioner Dan Jørgensen told ministers in Dublin this week that he will propose delaying the import part of the regulation by a year to 2028, although member states and parliament still have to formally agree.

This article continues, but the full version is available only to EUobserver.com subscribers. Visit account.euobserver.com/membership

The EU and its G7 partners agreed on Friday (2 October) to a coordinated release of 100 million barrels of diesel and crude through the International Energy Agency (IEA) over four months.

The release includes “a frontloaded substantial diesel release within the first 20 days,” a press brief released after a Friday afternoon call read.

The call was initiated by French president Emmanuel Macron who holds the rotating G7 presidency on Friday, after he spoke to US president Donald Trump on Thursday.

“Europe has just agreed to release a massive amount of their heavily stocked Diesel Oil. The process will begin immediately,” Trump wrote on Truth Social shortly afterwards.

Trump had pressured EU leaders to agree to the release all week.

On Thursday, US treasury secretary Scott Bessent urged Europe to “immediately” tap its reserves.

And EU leaders had received a proposal from the White Housethe same day for 120 million barrels of diesel over 180 days.

Washington had already approached France, Germany, Italy, Ireland and the UK individually, warning they could face US diesel export bans if they did not comply.

US diesel prices hit a record $6.53 per gallon last week, which is a liability for Trump’s Republicans ahead of the 3 November midterm elections.

Europe’s reward is a single line in the G7 statement, which reaffirms a commitment “to refrain from export restrictions on energy and energy products” between G7 countries.

The EU also on Friday had insisted that any further release come with a US pledge to avoid a unilateral diesel ban, and rejected the suggestion that they buckled to US pressure.

“We fully reject a [US] ban on diesel. A ban would not be beneficial to anyone. It would undermine our trust in the US as a reliable partner,” said Anna-Kaisa Itkonen, the commission’s energy spokesperson.

She declined to comment on the leader’s call ahead of time.

Commission chief spokesperson Paula Pinho said the coordination had “nothing to do with” recent threats.

She noted that gas prices had risen by 140 percent and diesel prices had doubled since February, and that a release agreed in March was still being implemented.

The G7 text presented Friday’s decision to release the 100 million barrels as continuing those commitments.

But the commission’s own oil coordination group concluded this week that there was “no immediate security supply issue” in the EU, Itkonen said.

Emergency stocks exist to deal with supply disruptions, not prices.

But the IEA route gives European capitals political cover, allowing them to present the release as collective action rather than a concession to Washington.

And it may not be the last one. “We will convene in the context of the IEA in the coming days to discuss the possibility of additional diesel releases as necessary,” the G7 statement said.

Nearly 100 US civil society groups have urged EU governments not to cave to pressure from oil and gas lobbyists and the White House as the European Commission moves to delay parts of its methane rules by a year.

“The US has done absolutely everything possible to actively deprive Europe of secure, reliable and diversified energy supplies,” said the group in a letter to EU energy ministers dated 29 September and circulated on Wednesday (30 September).

“The Trump administration is using its ‘energy dominance’ agenda to openly blackmail the Union into lowering its climate and human rights standards, including on methane,” they also said.

All operational US export terminals, many supplying Europe, have violated air pollution limits, and the EUs methane rules are “the last opportunity” to impose standards on US gas, the letter says. 

“Let’s work together on both sides of the Atlantic,” they say. 

The letter writers include global NGOs such as Greenpeace US and Friends of the Earth US but also smaller groups that live next to US gas export terminals such as the environmental organisation, For a Better Bayou.

The decision to postpone

In July, a group of US lawmakers also wrote to EU commission president Ursula von der Leyen, urging her to hold the line.

Democratic congressman Sean Casten, one of the letter’s authors, later visited Strasbourg and told EUobserver that the EU policymakers he met were “almost unanimously supportive of us pushing harder” to help them save the rules.

But over the summer, a majority of member states, including Germany, Europe’s largest gas market, became convinced that delay is necessary fearing gas exporters might reroute their supplies to easier markets.

During that time energy ministers from the US, Qatar, Nigeria and Algeria all warned EU regulation could disrupt fuel and gas supplies

On Tuesday, EU energy commissioner Dan Jørgensen signalled at an informal meeting of energy ministers in Dublin that he will propose delaying the regulation. 

“I’ve already stated that on the methane regulation, a very important regulation for Europe, we stick to the objectives, we stick to our ambitions,” he said.

But, he continued, “after having listened to many, many member states, a big majority of member states in the union,” he decided “to look into possibilities of postponing the parts that are connected to imports by one year”.

This article continues, but the full version is available only to EUobserver.com subscribers. Visit account.euobserver.com/membership

Six frugal countries this week circulated a letter threatening to block a deal on the next EU budget unless “hundreds of billions” of euros in spending was cut. 

The Dutch and Germans, ever the most zealous keepers of the frugal flame, want to redirect what remains away from regional and farming funds, towards innovation and defence.  

For those following EU fiscal debates, this song will sound familiar. So-called ‘net payer’ countries have never liked sending money to the economic periphery. 

In 2013, after a year of bickering, Britain, Germany, and the Netherlands killed a European Commission plan for a five percent increase and pushed through the EU’s first-ever budget cut, with farm and cohesion funds taking the biggest hit.

But new research suggests that the frugals may be shooting themselves in the foot. 

Last week, Olga Ivanova, a senior researcher at the Netherlands Environmental Assessment Agency (PBL), published a study in Dutch economics journal ESB calculating what EU money actually does for the Netherlands’ 12 provinces. 

And, for most of them, she found that the growth effect of EU investment outweighed their share of what the Netherlands paid into the budget. 

Using PBL’s own economic model, she traced 10 EU funding streams between 2013 and 2024, from Horizon science research grants to farm subsidies and regional development money. 

Across the Netherlands as a whole, provinces get back about 99 cents in extra growth for every euro paid out to the EU budget.

This article continues, but the full version is available only to EUobserver.com subscribers. Visit account.euobserver.com/membership

The MEPs steering the EU’s key industrial law want “Made in Europe” to mean that goods are actually produced in the EU.

Their draft report on the Industrial Accelerator Act (IAA), presented to three parliament committees on Monday (28 September), would reserve the label, and the subsidies and public contracts that come with it, for goods produced in the 27 member states.

Partner countries such as Japan or Korea could be added later, but only if they meet set criteria.

This is a break with the EU commission’s proposal, which would apply to virtually every country with a free-trade or procurement deal with the EU. 

This article continues, but the full version is available only to EUobserver.com subscribers. Visit account.euobserver.com/membership