'Reminiscent of sovereign debt crisis': France in eye of the storm as euro drops to 17-month low and bond markets turn on Paris

Updated: 10:04 EDT, 5 October 2026 The euro has tumbled to a 17-month low as mounting budget worries in France stir fears of a new debt crisis in the single currency zone.Europe’s second biggest economy – now dubbed the ‘sick man of Europe’ by some experts – is being targeted by bond investors and concerns are growing that the danger may spread.That sent the single currency sliding to less than $1.12 versus the dollar, the lowest since May 2025.The euro also fell sharply against the pound, with sterling jumping above €1.18, close to its highest level since summer last year.It came as Spain’s prime minister called a snap general election, adding to political uncertainty on the continent.France is being targeted by so-called ‘bond market vigilantes’ who fear its public finances may be spiralling out of control amid political paralysis and a looming presidential election next year. Crisis-torn France is mired in political stalemate over budget plansAt the same time the country is being convulsed by deepening student unrest that has seen schools burnt and education staff attacked. A sell-off of French bonds last week widened the gap in borrowing costs between France and Germany to levels not seen since the eurozone’s debt crisis in 2011.This ‘spread’ is seen as a gauge of the risk premium that investors demand to hold French debt.Hauke Siemssen, strategist at Commerzbank, said: ‘Latest bond market dynamics are increasingly concerning and somewhat reminiscent of a sovereign debt crisis. The (French) spread sell-off seems to increasingly feed on itself, creating a dangerous market backdrop.’Kathleen Brooks, research director at XTB, said: ‘France is the epicentre of the concerns, however, Spain is also set to get ready for an early election, which is adding to investor worries.‘All eyes will be on any signs of contagion in Europe’s bond market. The question now is, will Spain be next? Europe is out of favour with investors and bond market vigilantes are watching developments in the Eurozone closely.’The crisis comes after France’s prime minister Sebastien Lecornu last week unveiled plans for tax rises and spending cuts in a budget that will struggle to win approval from a divided parliament amid growing public disquiet over the cost of living.Even that plan would make minimal headway in shrinking the country’s annual deficit - and populist candidates of the far left or far right could make things even worse after next year’s vote.Charlotte de Montpellier, senior economist at ING Bank, said France still had strengths including its nuclear power and defence industries – but admitted the fiscal situation was worrying.‘Not everything is dark but I would say that France is definitely in a dark situation right now. It doesn’t mean that it will be like that forever but it will need to have a big reform in order to solve the current situation,’ she said.De Montpellier said there was a risk of ‘contagion’ to neighbouring countries as Europe enters budget season.She added: ‘I don’t think we are going into a public debt crisis but the risk has increased.’