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.

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.

Sul 3,1 per cento di deficit confermato dall’Istat si è alzato un polverone. A parte il fatto che il vincolo del 3 per cento non è più così stringente, Pil ed entrate sono aumentati. Sono le previsioni sbagliate sulla spesa ad aver determinato il risultato.

L'articolo Come si è arrivati al 3,1 per cento proviene da Lavoce.info.

France has crossed a critical threshold as its public debt exceeded €3.5 trillion in the first quarter of 2026, reaching 117.5% of GDP. The French Court of Auditors has sounded the alarm over what it describes as an “alarming” fiscal situation, as public deficits hit record levels and debt-interest costs continue to soar.

Public Debt Exceeds €3.5 Trillion

During the first quarter of 2026, France’s public debt passed the symbolic milestone of €3.5 trillion, reaching €3.5361 trillion at the end of March. The figure underscores the scale of the country’s budgetary challenges.
To put this amount into perspective, France would theoretically have to sell its entire gold reserve, all publicly traded and privately held state assets—including companies such as EDF, Engie, and Airbus—as well as all government-owned buildings and land in an attempt to repay the debt in a single payment. Even such a drastic measure would likely fall short.

In just one quarter, France’s Maastricht-defined public debt increased by €75.6 billion, a sharp rise in a very short period. This growing debt burden reflects a longstanding reality: for more than fifty years, the French government, local authorities, and social security system have collectively spent more each year than they have collected in revenue, particularly through taxation. To cover this structural gap, France has continued borrowing from financial markets.

Debt-to-GDP Ratio Nears Historic High

Beyond the headline figure, analysts and financial institutions are particularly concerned about debt relative to economic output. According to France’s National Institute of Statistics and Economic Studies (INSEE), public debt now equals 117.5% of gross domestic product.

The increase has been dramatic. In 1980, public debt represented only 20% of GDP. By 2000, it had risen to approximately 60%. Over four decades, the debt-to-GDP ratio has nearly increased sixfold.

The current level of 117.5% is approaching the all-time record of 117.8% recorded in the first quarter of 2021 during the COVID-19 pandemic. At that time, President Emmanuel Macron launched an unprecedented economic rescue effort, pledging to spend “whatever it takes” to prevent economic collapse.

Although the health crisis has long since passed, France’s debt trajectory has not slowed significantly. Within the European Union, only Greece and Italy have higher debt ratios, making France the third most indebted country in Europe.

Warnings from the Court of Auditors

In response to what it views as a critical situation, France’s independent Court of Auditors, responsible for overseeing public finances, issued a warning report describing the state of the nation’s finances as “alarming.”

The report, revealed by France Inter and released ten months before the 2027 elections, calls for “strong, credible, and swift measures” to restore fiscal stability.

The court highlights several aggravating factors. First, France remains the only country in the eurozone whose debt level is higher today than it was at the end of the COVID-19 crisis. Second, public deficits continue to break records. France posted a budget deficit equal to 5.1% of GDP in 2025, the second-highest in the eurozone after Italy.

The government’s goal of keeping the deficit at 5% is viewed as unrealistic by the Court of Auditors, which fears a further deterioration of public finances.

Debt-Interest Costs Are Soaring

A particularly troubling development is the rapid increase in debt-servicing costs. As debt accumulates and interest rates rise in financial markets, the amount spent on interest payments has grown dramatically.

In the current state budget, debt-servicing expenses have become the government’s single largest expenditure category, surpassing spending on the national education system (excluding pension obligations).

Paradoxically, this situation coincides with a significant increase in taxation. Taxes rose by €38 billion across 2025 and 2026 as part of efforts to limit further deficit growth. Yet France already has the highest overall tax burden in Europe when taxes and social contributions are combined.

This creates both political and economic tensions: higher taxes have not been sufficient to slow the growth of public debt, raising questions about the effectiveness of current fiscal measures.

Structural Challenges Extend Beyond Short-Term Solutions

France’s current trajectory highlights a troubling economic reality: structural public spending is growing faster than tax revenues, creating a persistent deficit that is difficult to eliminate.

Programs such as social welfare, pensions, healthcare, and public investment involve long-term commitments, while tax revenues tend to fluctuate with economic conditions.

This divergence between economic growth and debt growth raises a fundamental question for France’s public finances. If GDP expands by only 1% to 2% annually while debt continues to grow by 3% to 4% per year, the debt-to-GDP ratio will inevitably continue rising unless major policy changes are implemented.

French voters heading to the polls in 2027 will likely face a difficult choice between maintaining current levels of public services and restoring fiscal sustainability.

Breaking the Debt Spiral

To reverse the trend, experts and institutions such as the Court of Auditors recommend a combination of measures: controlling the growth of public spending, improving the efficiency of existing expenditures, broadening the tax base without increasing marginal tax rates, and accelerating economic growth to boost revenues.

As the eurozone’s second-largest economy after Germany, France possesses significant economic resources. However, meaningful structural reforms will require political consensus and a willingness to accept difficult compromises.

In the short term, the government must demonstrate that its deficit-reduction commitments are credible. In the medium term, comprehensive reforms of public spending—particularly in pensions and healthcare—appear unavoidable. Over the long term, only sustained economic growth combined with spending discipline will be capable of reversing the debt dynamics that have characterized France for decades.

L’article France: Public Debt Surges Past €3.5 Trillion, Raising Serious Concerns est apparu en premier sur FrenchDailyNews.