Euro: France fiscal risks to have limited drag – BBH
Brown Brothers Harriman’s Elias Haddad reports EUR/USD has stabilized after dropping to its lowest level since May 2025, as widening France-Germany yield spreads highlight growing French fiscal concerns.
Brown Brothers Harriman's Elias Haddad reports that the EUR/USD exchange rate has stabilized after dipping to its lowest level since May 2025. This stabilization occurred as the widening yield spread between France and Germany highlighted growing concerns over France's fiscal situation. BBH anticipates that France's 2027 budget will primarily roll over from 2026, which could lead to a higher deficit.
However, the firm emphasizes that these issues are country-specific, with periphery spreads remaining contained, thus limiting the systemic drag on the Euro. EUR/USD steadied at 1.1312, its lowest level since May 2025. France's 10-year bond yield premium over Germany reached a record 120 basis points, the highest since 2012. The French debt agency announced that the total financing requirement for 2027 would be a record €339.7 billion, up €28 billion from 2026, based on a public deficit target of 5.0% of GDP.
Despite the worsening fiscal credibility, BBH maintains that France's situation remains isolated and does not pose systemic risks to the Eurozone.
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