France's borrowing costs have rocketed to their highest level in nearly a quarter-century, with the country's benchmark 10-year bond yield briefly topping 5% this month for the first time since 2002, as investors grow increasingly nervous about Paris's ability to get its finances under control.

The spread between French and German 10-year bonds — the market's preferred gauge of how much riskier France looks next to Europe's safest borrower — has widened to roughly 130 to 157 basis points, territory not seen since the depths of the eurozone debt crisis around 2011. The selloff is being driven by political deadlock in Paris: Prime Minister Sébastien Lecornu, who survived a string of no-confidence votes to hang onto his job, is now trying to push a 2027 budget built around roughly €54 billion in savings through a parliament where he commands no reliable majority.

Goldman's December Warning

Analysts at Goldman Sachs have reportedly warned that budget negotiations could drag on into December, and that France's deficit could balloon to as much as 6.4% of GDP if lawmakers fail to reach a deal — more than double the European Union's 3% target. France's Finance Minister, Roland Lescure, has tried to project calm, insisting the bond market is "not dysfunctional" even as the finance ministry has quietly scaled back sales of bonds maturing beyond 30 years, a sign officials are wary of weak demand for France's longest-dated debt.

BORROWING COSTS NOT SEEN SINCE 2002 — AND A GOVERNMENT THAT CAN'T GUARANTEE ITS OWN BUDGET WILL PASS

It's the latest chapter in a political crisis that has rattled French markets for more than a year. Lecornu is France's seventh prime minister of President Emmanuel Macron's current term, and he has twice had to beat back no-confidence motions from both the far-right National Rally and the hard-left France Unbowed since taking office. Each near-miss has bought the government a little more time, but not stability: investors have watched France's borrowing premium climb step by step every time the political math in the National Assembly looks shakier.

The stakes go beyond Paris. A prolonged French fiscal crisis would be a headache for the entire eurozone, given France's size as the bloc's second-largest economy, and any sustained loss of investor confidence in French debt could spill over into borrowing costs for other heavily indebted European governments. For now, officials insist the country can manage the turbulence, but with budget talks potentially stretching past the new year, traders are bracing for more volatility in French bonds before any resolution is in sight.

Lecornu's government is expected to continue negotiations with rival factions in the National Assembly in the coming weeks, with the 2027 budget's fate still very much undecided.