--- title: "The euro hits a 17-month low, and the problem is that nobody believes France’s budget" description: "The French-German bond gap is the widest since 2012, Spain just called a snap election, and the ECB says everything is fine" author: "Nate Ledger" published: 2026-10-05T11:18:20Z modified: 2026-10-05T18:14:46Z url: https://rews.cc/a/the-euro-is-at-a-17-month-low-and-the-problem-is-the-politic-7168d5 language: en tags: ["euro", "inflation", "france", "spain", "economy", "europe", "finance"] publisher: "Rews (https://rews.cc)" --- # The euro hits a 17-month low, and the problem is that nobody believes France’s budget *The French-German bond gap is the widest since 2012, Spain just called a snap election, and the ECB says everything is fine* By Nate Ledger · October 5, 2026 · https://rews.cc/a/the-euro-is-at-a-17-month-low-and-the-problem-is-the-politic-7168d5 ## In brief - The euro touched $1.1161, its weakest since May 19, 2025, and is down about eight cents from January’s $1.20 peak - The France-Germany 10-year spread hit roughly 146 basis points, the widest since 2012, with contagion to Italy and Belgium - France’s 2027 budget targets a deficit of 5% of GDP via €54bn in savings; Barclays and ING doubt the targets will be met - Spain’s Sánchez called a snap election for Nov. 29 after housing decrees failed; Spanish bonds stayed calm at a 65bp premium - The ECB has raised rates twice since June with inflation at 3.8%; its bond-market backstop, created in 2022, has never been used The euro fell to its weakest level against the dollar in 17 months on Monday, touching $1.1161 in Asian trading before recovering to around $1.12 by the European open. CNBC, citing LSEG data, had it last down 0.6%, its lowest since May 19, 2025; the Guardian recorded an intraday drop of as much as 0.8%. The currency is down about 1.2% this month, which extends a slide of roughly eight cents from its January peak of $1.20. After four consecutive weekly losses, this is no longer a blip; it is a trend with a cause, and the cause has an address in Paris. When investors worry about a eurozone government, they do not sell the euro first. They sell that government’s bonds and buy Germany’s instead, and the gap between the two yields becomes a kind of fever thermometer. That gap — France’s 10-year yield over Germany’s — now stands at roughly 146 basis points, the widest since 2012, at the height of the eurozone debt crisis, after its largest weekly increase in 17 years. France’s 10-year yield hit 4.917% early Monday, close to last week’s 24-year high, having closed Friday around 4.856%. Italy’s premium over Bunds neared 110 basis points on Thursday, and Belgium and Greece were hit too, while German bonds drew safe-haven demand. There has been “clear contagion towards the likes of Belgium or Italy,” analysts at KBC wrote Monday. The underlying math is not complicated, which is part of the problem. France’s minority government, led by Prime Minister Sébastien Lecornu, has presented a 2027 budget built on a €54bn savings drive — cutting pension spending and departmental budgets, with defence exempted — that aims to bring the deficit down to 5% of GDP. Depending on whom you read, it is coming down from 5.4% of GDP this year (Barclays and euronews) or 5.5%, which is the figure Lecornu himself used, warning that without action it could reach 6.5%. Finance Minister Roland Lescure insisted last week that France remains a solid borrower. The debt stands near 120% of GDP. Barclays says the targets are unlikely to be hit even if the budget passes; ING says even full passage would leave the deficit “too high to stabilise the debt ratio,” with ageing costs and interest payments still rising. Then there is the politics, which is the part bond traders can’t hedge. President Emmanuel Macron’s centrist administration governs without a majority amid strikes and street protests, Marine Le Pen’s far-right National Rally is gaining ground, and a presidential election looms next spring. “So far, none of the main presidential candidates has presented a sufficiently detailed plan explaining which expenditure would be reduced, which taxes would change or how the debt ratio would eventually be stabilised,” ING’s strategists noted. The market is being asked to believe in fiscal consolidation that nobody currently campaigning has actually described. Spain, helpfully, provided a control group this week. Prime Minister Pedro Sánchez called a snap election for Nov. 29 on Monday, after parliament rejected two of his minority government’s housing decrees on Friday — and the market barely blinked. Spain’s 10-year yield sat mostly steady between 4.07% and 4.09%, a premium of about 65 basis points over Germany, less than half of France’s. RBC Wealth Management’s Rufaro Chiriseri told CNBC that during last week’s sell-off Spanish and Portuguese debt “didn’t sell off as aggressively as we saw in France, in Italy,” because investors trust Madrid’s commitment to the fiscal rules. Even Spain’s Ibex 35 ended the morning up 0.4%, after a brief dip on the announcement. The lesson: the eurozone will tolerate your election. It just wants to believe your arithmetic. All of which lands on the desk of the European Central Bank at an awkward moment. Inflation hit 3.8% in September — with the war in Iran adding upward pressure — and the ECB has raised rates twice since June, yet traders are already paring bets on further hikes. The bank’s Transmission Protection Instrument, a bond-buying backstop created in 2022 for precisely this sort of spread blowout, has never been used. Bundesbank chief Joachim Nagel, a likely candidate for the ECB presidency, said Thursday the bank’s focus is price stability, not “certain spread levels” — central-banker for: do not expect us to rescue French bonds. Christine Lagarde, asked about France by La Croix, allowed that “when your debt is close to 120% of GDP and not on course to be brought under control, it’s a serious matter,” before adding that “it’s not 2008 or 2011.” Elsewhere Monday, the CAC 40 fell more than 1% while the FTSE 100, DAX, FTSE MIB and AEX all edged higher and the Stoxx 600 added 0.6% — which tells you this is a France story wearing a euro costume. The dollar side of the pair got its own push Friday, when US jobs growth came in at just 29,000 for September, far below expectations, prompting traders to pare bets on an October Fed hike and lifting the S&P 500 by 0.7%; the Fed’s September minutes arrive Wednesday. As for where it goes: ING warned the market could “easily add another 2% in risk premium to the euro” if the bond sell-off extends, and UniCredit’s Roberto Mialich said a retest of $1.10 is possible near term, with political tensions “primarily in France and Spain” doing the pressing. The reassuring line of the week is that it’s not 2011. Fair enough: in 2011 there was no backstop at all, and now there is one, sitting unused in a drawer that the ECB insists it is not watching. Saying that it’s not 2011 is, historically, among the things people tended to say in 2011. ## Sources - [Euro hits 17-month low as Spain and France political uncertainty rattles markets](https://cnbc.com/2026/10/05/euro-dollar-spain-france-risk.html) — cnbc.com - [Euro falls to 17-month low against dollar amid French debt fears](https://theguardian.com/business/2026/oct/05/euro-falls-dollar-amid-french-debt-cac-40-spain-eurozone) — theguardian.com - [Euro hits 17-month low as French debt fears mount and Spain heads for snap election](https://euronews.com/2026/10/05/euro-hits-17-month-low-as-french-debt-fears-mount-and-spain-heads-for-snap-election) — euronews.com