French borrowing costs surpass Spain's, a first since 2006

The French government's borrowing costs surpassed Spain's for the first time in almost 18 years on Thursday as investors worry about France's yawning public deficit.

The yield, or interest rate, on 10-year French sovereign bonds reached 2.94 percent in early afternoon deals compared to 2.93 percent for the Spanish equivalent.

The last time Spain paid less than France, the European Union's second-biggest economy, to borrow money was in November 2006.

Spain was among southern European countries at the heart of the eurozone debt crisis more than a decade ago, which forced them to enact austerity measures.

More recently, Spain's economy is growing at a much faster pace than those of France and Germany.

Eric Dor, director of economic studies at France's IESEG School of Management, said the "dramatic improvement in the performance of southern countries" was the main factor behind Spain's borrowing costs being lower than France's.

Read also

Leftist Sri Lanka leader stuck with painful IMF deal: analysts

"But the deterioration of French public finances and the uncertainty about the ability to restore the books are not in France's favour," Dor added.

The French public deficit could exceed six percent of national output this year -- double the limit set by the European Union.

Newly appointed French Finance Minister Antoine Armand said it was "one of the worst" deficits in the country's modern history.

The political situation in France has also made investors nervous since President Emmanuel Macron called a snap election that left no party with an outright majority after the second round of voting in July.

A new government, led by conservative Prime Minister Michel Barnier, was appointed only on Saturday.

Barnier's government faces a parliamentary gauntlet in the coming months.

Ministers must try to get a 2025 budget with steps to repair public finances through the lower-house National Assembly, divided roughly into three blocs following the inconclusive election.

Read also

China cuts another key interest rate to boost economy

"France's fiscal uncertainty and the trajectory that will be set during the adoption of the future budget are beginning to have an impact on the country's refinancing capacity in financial markets," Frederic Rozier, portfolio manager at asset management group Mirabaud, told AFP.

mgi-alb/lth/js

© Agence France-Presse

Source: AFP