By August 2025, France’s sovereign interest rate reached above 3.4%. During the same period, bank lending rate for non-financial companies (NFCs) hit a record high of around 3.4%. The intersection of these two trends represents a historic and profound change in France’s fiscal trajectory and is indicative of a larger trend occurring across the Eurozone. Analysts suggest this alignment may have implications for credit conditions in the private sector, particularly as France’s public debt ratio is projected to increase.
The euro area’s public debt ratio is only projected to increase by five percentage points of GDP under current policy by 2030. By 2024, experts predict that it will climb to 87.2% of GDP. By contrast, this number was 83.6% in 2019. Analysts are identifying Germany’s increasing public debt as the reason for upward pressure on its rates. For one thing, they are using this debt as a new anchor/yardstick for European sovereign rates.
The 3-month/10-year swap rate has plunged to record negative rates. This trend is significant as it comes close to the German rate, which serves as Europe’s risk-free rate for sovereign rates. This trend of convergence is strikingly similar to what we experienced during the Eurozone crisis. In those days, sovereign rates and NFC borrowing costs went hand-in-hand.
Sovereign rates have shot up in almost all Eurozone countries. Banks are today providing significantly lower average interest rates on loans for non-financial companies. This implies that despite the rising public debt ratios, the negative effect on private sector credit conditions could be mitigated.
Monetary policy remains in a broadly neutral territory, and experts predict it will maintain this stance over the next twelve months. This means that even though borrowing costs have fallen far and fast, the ability to continue that trend is probably somewhat constrained.
“Eurozone: the bulk of the decrease in borrowing costs is behind us.” – BNP
France’s sovereign rates are a moving target. Their correlation with bank lending rates illustrates the often puzzling connection between public debt and private sector credit. As France continues to work through these challenges, all stakeholders are intently watching to see how these reforms will bring re-established economic growth and investment.