Overview

• France faces a projected 2025 deficit of 5.4% of GDP, a year after the European Commission opened a deficit procedure.
• Investors now demand higher risk premia on French bonds, with yields above Spain’s and close to Italy’s, lifting refinancing costs.
• The ECB’s 2022 Transmission Protection Instrument allows discretionary bond purchases without prior reform conditions, and analysts including Commerzbank’s Jörg Krämer expect quicker action than in 2010 if stress builds.
• Prime Minister François Bayrou has set a September 8 confidence vote following a proposed €44 billion austerity package with tax increases, and unions have announced a general strike.
• Economists warn ECB backstops could stoke inflation and moral hazard and fuel political backlash against debt mutualization, with German debate already sharply critical.