Desmond Lachman Warns France Debt Crisis Threatens Eurozone

France’s Sovereign Debt Hits 119 Percent of GDP, Matching 1946 Highs

France’s public debt climbed to 119 percent of gross domestic product in the second quarter of 2026, reaching its highest level since 1946 and raising urgent alarms about the stability of the eurozone. Desmond Lachman, a researcher at the American Enterprise Institute and former deputy director at the International Monetary Fund, warned that the country has entered the preliminary phase of a potential financial crisis, driven by surging bond yields and a widening spread over German debt.

Widening Spreads and 4.9 Percent Yields Fuel Market Panic

The yield on French 10-year government bonds sits at approximately 4.9 percent, while the spread between French and German borrowing costs has widened to roughly 140 basis points. According to Lachman, this differential represents the highest gap recorded since the sovereign debt crisis of 2010. Markets have reacted swiftly to mounting fiscal pressures and political uncertainty, viewing the trajectory as increasingly unsustainable.

Lecornu’s 43 Billion Euro Plan Falls Short of 3 Percent Target

The government of Sébastien Lecornu recently announced 43 billion euros in new adjustment measures aimed at steering the public deficit down to 5 percent of GDP. Lachman argues that such efforts fall short, noting that policymakers must ultimately target a 3 percent deficit to regain credibility with international markets.

German Political Volatility Constrains European Central Bank Intervention

Lachman emphasizes that if France encounters systemic failure, the broader European monetary union faces a test due to the size of the French economy and its heavy reliance on foreign debt holders.

Global Headwinds Amplify Contagion Risks Across the Currency Bloc

The situation in France unfolds against a backdrop of rising US Treasury yields and international economic headwinds, including energy price pressures and slower growth in China. Drawing a parallel to the 2010 debt crisis that began in Greece, Lachman cautions that a loss of confidence in one major nation can quickly prompt investors to reevaluate debt exposures across the entire currency bloc. Without a credible, long-term fiscal consolidation plan backed by strong domestic governance, borrowing costs and market volatility threaten to tighten their grip on the European economy.