French government bonds suffered heavy losses as the 30-year yield surged to its highest level since 2009, with failed budget negotiations sparking investor concerns over the country's fiscal outlook.
On December 19, Bloomberg reported France's 30-year bond yield rose 7 basis points to 4.525%, while the 10-year yield climbed 6 basis points to 3.614%, nearing a nine-month peak. The immediate trigger for the selloff came after Prime Minister Sébastien Lecornu confirmed the government's inability to pass the 2026 budget before year-end.
Compromise talks between Senate and National Assembly representatives collapsed abruptly on Friday, leaving the budget bill unresolved. This forces the government to extend the current budget framework through 2026, severely constraining its ability to implement fiscal reforms.
The budget impasse deals a significant blow to Prime Minister Lecornu, who had made passing the annual budget before December 31 a key priority since his reappointment in October.
In a post on social media platform X, Lecornu stated: "Consequently, parliament won't vote through France's budget before year-end. I regret this outcome - our citizens shouldn't bear these consequences." He announced plans to meet opposition leaders on Monday to discuss "protective measures for the French people and conditions for solutions."
While budget continuity mechanisms prevent government shutdown, this stopgap measure blocks approval of new spending initiatives - including President Macron's critical proposal to boost defense expenditure by €6.5 billion over two years.
The stalled budget severely jeopardizes France's deficit reduction roadmap. Lecornu's proposed measures aimed to cut the 2026 fiscal deficit below 5% of GDP, targeting 3% by 2029 to meet EU Commission requirements.
Bank of France Governor François Villeroy de Galhau warned on national radio that budget extension would "result in deficits substantially above desirable levels... as it contains neither cost-saving measures nor tax provisions."
Persistent political instability and fiscal uncertainty have already triggered multiple downgrades to France's sovereign credit rating. The latest budget failure intensifies market concerns about fiscal sustainability.
Lecornu's compromise strategy backfired after he voluntarily relinquished constitutional authority to bypass parliamentary votes - a move that would have risked a no-confidence vote but guaranteed budget passage.
To secure support, the prime minister offered concessions to center-left Socialists, including pausing Macron's pension reforms, which enabled partial approval of social security provisions.
However, negotiations deadlocked over the budget's core text, with opposition parties filing thousands of amendments that stalled proceedings. An earlier version was rejected last month with just one affirmative vote in parliament.
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