French Debt Crisis: What It Means for Your Portfolio

The French debt crisis reaches a typical Degiro portfolio through three doors: the euro, your euro government bond ETF and French shares. Right now the first door is quietly flattering your US stocks, the second is where most of the real risk sits, and the third is smaller than the headlines suggest.

Here is what happened in the last week, and how to check your own exposure in about 15 minutes.

What Is the French Debt Crisis?

The French debt crisis is a sharp rise in what markets charge France to borrow, driven by a deficit the government has repeatedly failed to cut and a parliament that may not pass the plan to cut it.

The figures are not new, but they keep getting worse. French public debt reached €3.6 trillion in the second quarter of 2026, or 119% of GDP, up from 115.6% a year earlier, according to Euronews' breakdown of the crisis. The deficit is 5.4% of GDP this year against an EU limit of 3%. France missed its own budget targets in three of the four years from 2023 to 2026.

Prime Minister Sébastien Lecornu's 2027 budget proposes €54 billion in savings and new revenue to bring the deficit down to 5%. France also plans to borrow a record €340 billion next year. The problem is that Lecornu runs a minority government, the budget debate starts on 13 October, and a presidential election follows in spring 2027. Markets are pricing the odds that the plan survives parliament, not the plan itself.

Scope Ratings cut France from AA- to A+ on 18 September. Moody's, which rates France Aa3 with a negative outlook, is due to update its view on 23 October.

Why the OAT Bund Spread Is the Number to Watch

The OAT Bund spread is the difference between the yield on a 10-year French government bond (an OAT) and a 10-year German one (a Bund). It is the price of French political risk in a single number.

That spread jumped 34 basis points in one week at the start of October, the largest weekly move in 17 years, and reached about 150 basis points on 2 October. The last time it sat that wide was during the 2011-12 euro crisis.

The part that should get your attention: France now pays more to borrow than Italy. In early October the French 10-year yielded around 4.9%, while Italy's eased to about 4.5%. For most of the euro's history, Italy was the risky borrower and France sat close to Germany. That order has flipped.

Contagion has started at the edges. Italian and Greek spreads widened by roughly 15 basis points as French bonds sold off. Spain added its own uncertainty on 5 October, when Prime Minister Pedro Sánchez called a snap election for 29 November.

Why the ECB Is Not Riding to the Rescue

The ECB has a tool built for exactly this kind of spread blowout, the Transmission Protection Instrument (TPI). But the first eligibility test in the ECB's own TPI criteria is "not being subject to an excessive deficit procedure." France has been under that procedure since 2024.

Those criteria feed a judgement call by the ECB's Governing Council rather than an automatic switch, so the door is not fully closed. But no investor should assume a quick backstop, and the bond market clearly isn't assuming one either. The ECB's next rate decision is on 29 October, after its hikes to 2.25% in June and 2.50% in September (background in our post on the ECB's June rate hike and your portfolio).

Door 1: The Euro at a 17-Month Low Is Flattering Your US Stocks

The euro fell 2.5% against the dollar in September, its biggest monthly drop since July 2025. On Monday 5 October it touched $1.1160, the weakest level since May 2025. In late January it was above $1.20.

For a euro-based investor, a falling euro raises the euro value of everything priced in dollars. Nothing about the companies has to change.

A worked example. Say you hold €50,000 in an all-world ETF. The Vanguard FTSE All-World UCITS ETF was 61.7% US stocks at the end of August, according to Vanguard's factsheet, so about €30,850 of your position is a dollar asset. A 2.5% fall in the euro lifts the euro value of that slice by about 2.6%, or around €790. Your September statement looks better than your stocks performed.

Stretch it to the year. An investor who bought US shares at the late-January peak has picked up about 7% from the exchange rate alone, from $1.20 to $1.116 per euro.

This is the mirror image of the phantom losses euro investors suffered in 2025. Back then a strong euro made solid US returns look weak, which we explained in why your portfolio looks down when the euro is surging. The same math now runs in your favour, and it can reverse just as fast if France's budget passes and the euro recovers.

Two practical points. If you sell US positions to bank the currency gain, Degiro charges 0.25% on the conversion back to euros (the full schedule is in our Degiro fees breakdown). And if you were about to buy US stocks, the weak euro makes them more expensive in euro terms, not cheaper.

The cleanest way to see the currency effect is to compare each holding's return in its own currency with its return in euros. If you track a Degiro account in a spreadsheet, that means keeping two price columns and an exchange-rate column current. Importing your Degiro CSV into a tracker like Zune.Money puts every position and its weight in the portfolio on one screen, priced in euros, so you can see which holdings are carrying the month.

Door 2: Your Euro Government Bond ETF Is About a Quarter French

This is the door most people miss. Many Degiro investors hold a broad euro government bond ETF as the "safe" part of a portfolio. Look at what is inside one.

The iShares Core Euro Government Bond UCITS ETF, one of the most widely held funds of its kind, had this country mix at the end of August, per its justETF fund profile:

France is the largest single country in the fund. France, Italy and Spain together make up about 60%, and all three are dealing with fiscal or political stress this autumn.

That is not a design flaw. Broad euro bond indices weight countries by how much debt they issue, so the biggest borrowers get the biggest slices. But it does mean your safe asset carries more of this crisis than your equities do.

The mechanics are simple. A bond fund's price falls by roughly its duration times the rise in yields. A fund with an average duration of 7 years loses about 7% if yields climb one percentage point, before coupons make some of it back. French yields alone are not the whole index, so the fund moves less than the OAT does, but the direction is the same.

What can you actually do? Investors who want their bond sleeve to stay out of this have a few options:

• Highest-rated euro government bond ETFs hold only AAA-rated issuers, which excludes France by rule. Amundi runs funds of this kind. The trade-off is a lower yield, because the safest borrowers pay the least.
• Single-country Bund ETFs remove spread risk entirely but put your whole bond sleeve on one government.
• Doing nothing is a reasonable choice for long-horizon investors. Higher yields mean higher future income from the same fund, and selling after a spread spike locks in the loss.

None of these is advice for your situation. Your time horizon, your tax rules and the role bonds play in your portfolio decide which fits, and a tax advisor in your country should check the details.

Door 3: French Stocks Are Less French Than They Look

The CAC 40 opened 0.86% lower at 7,829 on 5 October as the bond selloff spilled into equities. If you own French shares, it is tempting to treat them as a direct bet on the French state. Mostly, they are not.

CAC 40 companies do more than two-thirds of their business and employ more than two-thirds of their workforce outside France, and about 45% of their shares are held by foreign investors. A luxury group selling handbags in Asia, an energy major pumping oil in Africa or a drinks company selling in the US cares more about global demand and the dollar than about the French budget. A weak euro even helps their reported earnings, because foreign sales convert into more euros.

The exception is French banks. They hold large amounts of their own government's bonds, so falling OAT prices hit their balance sheets directly, and French bank shares have sold off with the bonds since late August. Domestic-facing companies that depend on French consumers or government contracts sit in the same group.

A quick way to sort your French holdings:

How to Check Your Exposure to the French Debt Crisis

You do not need a view on French politics to know where you stand. Work through these five steps:

1. Export your Degiro transactions. On the web platform, open the Inbox on the left of the screen, then Transactions, set the range to your full history and export the CSV. Work from the real list, not memory.
2. Group holdings by currency. Add up everything priced in dollars, including the US share of any world ETF. That number tells you how much the euro's fall is inflating your total.
3. Open the factsheet of every bond ETF you own and write down its France, Italy and Spain weights. Multiply by the position size to get your actual euro amount in each government.
4. Flag French banks and domestic-facing French companies separately from French multinationals. Only the first group is a direct bet on the French budget.
5. Compare your current weights with your target allocation. If the bond selloff or the currency gain pushed anything past your rebalancing band, act on the band, not the headline. Our guide to rebalancing at record highs covers how to do it without triggering a tax bill.

Steps two and five are where a spreadsheet usually breaks down, because exchange rates and prices go stale between updates. This is the job a portfolio tracker does without upkeep: import the Degiro export once and the weights stay current.

Dates to Watch

Four dates will decide whether this fades or deepens:

• 13 October: French parliament starts debating the 2027 budget.
• 23 October: Moody's update on France's Aa3 rating.
• 29 October: ECB rate decision.
• 29 November: Spain's snap election.

A passed budget and a held rating would likely narrow the spread and lift the euro. That would cool your bond fund's losses and shrink the currency gain on your US stocks at the same time. A failed budget or a downgrade would push the other way on both.

The useful habit is the same in either case. Know which part of your return came from the companies you own and which part came from the euro, because only one of those reflects your decisions. Import your Degiro CSV into Zune.Money and you can see every holding, its weight and its euro value in one place before the next headline arrives.