France’s borrowing rates soar as government considers reconsideration of pension reform

The country’s borrowing rates hit records Thursday morning, a sign of investor nervousness at a time when the government is seeking solutions for a sustainable budget.

On the morning of Thursday January 9, 2025, the yield on French 10-year sovereign rates soared to 3.40%, unheard of since 2011. The level at which France borrows on the markets is therefore soaring, worsening the cost of our debt . Certainly, this peak of tension occurs in a general movement of rising sovereign rates, at a global level, and is explained by the lack of global visibility. Donald Trump’s future policy is worrying, in particular, his protectionist measures which risk reviving inflation.

In France there is added political instability which weighs heavily. The simple fact that François Bayrou says he is ready to reconsider the 2023 pension reform and the retirement age of 64 is panicking investors. However, this is the content of the exchanges of recent days between Éric Lombard, the Minister of the Economy and the socialists. Retirement is today one of the keystones of a possible compromise between the executive and the left.

If this worries the markets so much, it is because the pension system is already in deficit of more than 10 billion euros at least. According to the president of the Retirement Orientation Council Gilbert Cela, this deficit will further worsen because of the tense economic situation and the rise in unemployment. It is in fact the contributions of working people which pay the pensions of retirees and as retirement remains our main expenditure item, for the markets and the rating agencies, going back to 64 years old opens the door to all financial slippages.

While France already has one of the highest levels of deficits in the euro zone and gives the impression that it is incapable of reforming itself, the pension reform is a real marker for the markets. They do not understand the French social model. In most countries, people retire later. And then, above all, they say to themselves that they will suffer the double punishment: the unraveling of the pension reform coupled with a budget hostile to companies and businesses, with exceptional contributions on large groups, and taxes on the most fortunate. Nothing to reassure them.