Overview

• On July 17, Prime Minister François Bayrou announced €43.8 billion in spending cuts and freezes for the 2026 budget.
• French 10-year government bond yields tightened to 3.37%, narrowing the gap with Italy’s 3.54% benchmark to its lowest level in over a decade.
• Despite the austerity package, sovereign debt markets remain unmoved as investors price in risks of political gridlock since the June 2024 Assembly dissolution.
• European Commission projections foresee France recording the eurozone’s largest public deficits in 2025 and 2026, well above the EU’s 3% of GDP ceiling.
• S&P Global Ratings retains France’s AA- rating with a negative outlook while Italy enjoys a BBB+ upgrade and stable perspective.