France’s coming bond crisis is a test for Europe’s double standards

As French ten-year government bonds now yield less than Greece's, Europe faces a crucial test on whether it will apply fiscal rules uniformly or favor politically influential member states, asserts Tim Focas. Remember the shock in 2012 when Greek bonds yielded more than France's? Yet today, Greece's yields are lower than France's.

The once indebted nation now pays less to borrow than a founding EU member. The Eurozone's baffling paradox is real and begs the question: when the next sovereign debt crisis hits, whom will the EU protect? The Greek debt crisis left investors scarred, and they wonder if the EU will truly protect all its members. In 2012, Greece reduced its debt by 53.5%, but the actual cost was much higher.

The remaining debt was restructured under new, low-interest bonds, and the European Central Bank protected its holdings while private investors suffered. The European Court of Human Rights deemed the restructuring legal, but raised concerns over equity. France, a crucial economic force in the EU, makes its precarious borrowing position uneasy.

While France is not Greece, it still carries political and credit risks. Investors worry about potential treatment of creditors if France's fiscal situation worsens. Would financial institutions tolerate a Greek-style treatment of private creditors? Or would they bend Europe's rules for a politically important country? The yield advantage over Greek bonds is just 0.36%, but the political uncertainty may deter investors. With France in the spotlight, Europe may soon reveal if it has learned from its past mistakes.