France's Prime Minister Sébastien Lecornu has warned that rising interest rates will add €10 billion to the country's debt servicing costs. He has ordered ministers to freeze non-defense spending at 2026 levels while drafting the 2027 budget, as 10-year bond yields hit their highest level since 2008.
Sébastien Lecornu told his cabinet that rising rates will pile an extra €10 billion onto France's debt servicing costs, a sum large enough to fund entire government ministries. In a letter dated September 15, 2026, he instructed ministers to hold non-defense state spending at 2026 levels when drafting the 2027 budget.
Yields hit levels last seen in 2008
France's benchmark 10-year OAT yields have climbed to 4.5%, a peak not reached since 2008. The country's total public debt now stands at roughly €3.5 trillion, or about 117% of GDP, and annual interest payments alone are projected to hit €65 billion — a figure that already exceeds what France spends on defense or education individually.
If the additional €10 billion materializes, total debt servicing costs would approach €75 billion annually, making it one of the largest line items in the French budget.
Political instability feeds the bond market squeeze
The rise in French borrowing costs stems from several factors building through 2026. Political instability has been a persistent theme, with coalition dynamics making it difficult for the government to project fiscal credibility to bond markets. Credit rating downgrades have compounded the problem, since rating agencies questioning a sovereign borrower's trajectory push investors to demand higher yields as compensation for perceived risk.
Lecornu's letter made the connection explicit: rising rates directly cannibalize the government's ability to fund public policy.
A real-terms cut dressed as a freeze
Freezing non-defense spending at current levels amounts to a real-terms cut. With inflation still present in the French economy, holding nominal spending flat means programs will have less purchasing power in 2027 than in 2026. Defense spending appears to be shielded from the freeze, so the adjustment burden falls entirely on civilian programs.
Earlier in 2026, Lecornu had already sought billions in budget savings to offset rising borrowing expenses and geopolitical risks. The September letter suggests those earlier efforts fell short, or that conditions have deteriorated faster than expected.
Source: Crypto Briefing
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