Durability: where France and Italy's prices come apart

Italy and France are currently paying lenders premia over Germany to borrow for ten years that are within five basis points of each other. In January 2023 they were 155bp apart. Italy fell 128bp and France rose 22bp[1]. The same price does not mean the spreads are equally durable.

Italy tightened on fiscal improvement. France widened on political and fiscal risk. A premium earned through fundamentals is more durable than one forced by politics.

The spread is the difference between what a government pays lenders and what Germany pays for the same maturity. Germany is the euro area's benchmark. Since the financial crisis, France has largely traded within tens of basis points of Germany. Italy was well over a hundred basis points higher, peaking at 234bp in autumn 2022. Italy fell below 100bp in June 2025, at 98bp. The last time was April 2010. In October 2025 both were at 82bp. In December 2025, January, and February 2026, France was wider, by 1bp, 4bp and 1bp. Italy has been wider again since March[1].

Italy's fall sits on a foundation of fiscal improvement. Before interest the government's revenue was 0.4% of GDP above its expenditure in 2024[2]. Scope is projecting this primary surplus to rise to 1.9% by 2030[3]. The national debt was 134.9% of GDP in 2024[4], projected by Scope to stabilise at around 136% by 2030[3]. Fitch affirmed its BBB+ rating with a stable outlook in March 2026[5] and Scope moved to a positive outlook in October 2025[3]. Italy's premium gradually fell 128bp between January 2023 and June 2026[1]. Italy has earned its price.

France's rise links to fiscal deterioration and repeated negative ratings. France's general government deficit was 5.8% of GDP in 2024, 5.6% in 2025, 5.4% in 2026[6]. Against the 3% target, France's deficit only improved by 0.2 percentage points per year. National debt was 113.2% in 2024, 116.5% in 2025, and projected by Scope to grow another 8.5 percentage points by 2030[6]. Two agencies acted in September 2025: Scope affirmed AA- and revised its outlook to negative on the 26th[6], Fitch cut France from AA- to A+ on the 12th[7]. The reason cited by Scope was "Rising general government debt and political instability"[6]. France's premium jumped 16bp from 51bp in May 2024 to 67bp in June 2024[1], the same month Macron dissolved the National Assembly[6]. It has not returned to its pre-June 2024 range since. Italy's move took years. France's took a month.

The bonds' premia are the same but their holder base is structurally different. In Q4 2025 non-residents held 56% of France's negotiable state debt[8] and 33.5% of Italy's general government securities[9]. Italian debt is held by domestic banks and insurers, which need euro assets against euro liabilities. German bonds meet that requirement and pay less. French debt sits with foreign investors who allocate between sovereigns. Between December 2024 and December 2025 Banca d'Italia shed €68bn of state debt while non-residents absorbed €109bn and private residents €78bn[9]. Italian debt is not just held by its central bank. The French base can reallocate. The Italian pays to.

In June 2026 France borrowed at 72bp over Germany[1]. That is cheap for a country with a 116.5% debt ratio. Nobody is pricing distress. Scope stated that France's debt profile is favourable, citing a long average maturity, excellent market access and a well-diversified investor base among the reasons for the AA-[6]. The AA- evaluates default risk. The spread measures what it pays. France is not in trouble. The durability of its price is a different question.

Fiscal developments will decide whether either premium holds. If France's deficit stays above 5% of GDP and Italy's primary surplus keeps rising towards 1.9%, France re-widens and stays above Italy. If France consolidates toward 3% and the spread holds at current levels, the move in premium was noise. If Italy's primary surplus slips, Italy re-widens and its tightening was not earned. Scope projects French net interest payments rising from under 2% of GDP in 2024 to over 3.5% by 2030[6]. A long-term larger spread becomes a budget cost as debt matures and is refinanced. Italy and France converged at 82bp in October 2025[1]. They were coming from different directions.

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Notes

[1] European Central Bank, "Long-term interest rate for convergence purposes," monthly series IRS.M.FR.L.L40.CI.0000.EUR.N.Z, IRS.M.IT.L.L40.CI.0000.EUR.N.Z and IRS.M.DE.L.L40.CI.0000.EUR.N.Z, updated 10 July 2026. Spreads calculated from own extraction.

[2] Istat, "Notification of general government deficit and debt according to the Excessive Deficit Procedure, years 2021-2024," 21 April 2025.

[3] Scope Ratings, "Scope affirms Italy's credit ratings at BBB+ and revises the Outlook to Positive," 31 October 2025.

[4] Banca d'Italia, "Public finance statistics: borrowing requirement and debt," 15 October 2025.

[5] Fitch Ratings, "Fitch Affirms Italy at 'BBB+'; Outlook Stable," 13 March 2026.

[6] Scope Ratings, "Scope affirms France's AA- credit rating and revises the Outlook to Negative," 26 September 2025.

[7] Fitch Ratings, "Fitch Downgrades France to 'A+'; Outlook Stable," 12 September 2025.

[8] Banque de France, "Percentage of negotiable debt issued by the state and held by non-residents," Webstat series DET.Q.FR.1315.F33000.M.Z9.8.F, updated 15 July 2026.

[9] Banca d'Italia, "General government debt: by holding sector," table TCCE0200, Statistical Database. Italian figures are general government debt on the Maastricht definition at face value; the French figure is negotiable state debt. Figures for 2025 are provisional.

Image credit: Loukian Jacquet, Unsplash

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Continental is a biweekly column on European economics by Felix Schmidt. New issues appear on Substack first and on the International Economics Post within 48 hours.