By Oleg Ustenko
The yield on 10-year French government bonds has reached 5% for the first time since 2002. Markets are sending increasingly strong signals about growing risks: political instability, a high budget deficit and a lack of willingness to impose strict fiscal discipline are beginning to have a direct impact on the country's borrowing costs. The widening spread between French and German government bonds is already reminiscent of the eurozone debt crisis.
Just a few weeks ago, many considered the situation to be temporary turbulence. Today, there are growing signs that the political crisis is gradually turning into a financial one.
The greatest danger for France is not even the current 5% yield, but the risk of triggering a negative spiral: the higher the cost of borrowing, the greater the cost of servicing the debt; the greater those costs, the harder it becomes to stabilise the budget; and the weaker the budget, the more nervous investors become.
My conclusion.
For Ukraine, this is also a worrying signal. Throughout the war, France has remained one of Ukraine's important creditors, donors and participants in support programmes.
If Paris is forced to allocate an increasing share of its resources to servicing its own debt and covering budget shortfalls, the room for external assistance will inevitably shrink. This means that risks to Ukraine's financing in the coming years could increase even without any change in the political position of the French leadership.
That is why French government bonds are now worth watching not only for investors. Their performance is becoming increasingly relevant to Ukraine as well.
