Comment from Ismael García Puente, Deputy Director of Investment Strategy at Mapfre AM, the asset management arm of Spanish insurer MAPFRE.
 
It was reported this week that French borrowing costs have reached their highest levels since 2002, amid growing concerns over the country’s public finances, political instability and ongoing protests.

France’s bond market has faced another wave of selling, with the spread between French and German 10-year government bonds reaching its highest level in almost 15 years, raising concerns about the possibility of another eurozone debt crisis. https://www.theguardian.com/world/2026/oct/22/french-borrowing-costs-overtake-us-amid-budget-turmoil.

Ismael has been following these developments closely and would like to share his opinion with you.

Ismael García Puente, Deputy Director of Investment Strategy at Mapfre AM, commented:

“The situation surrounding French debt, whose spread over the German Bund has widened beyond 150 basis points, could end up triggering a market crisis.

“However, for such a crisis to actually materialise, at least three conditions would have to be met. First, there would have to be a French government that denies the existence of a fiscal problem; second, there would have to be European partners willing to let that government fall; and third, there would have to be an absence of institutional tools capable of containing financial stress. None of these three conditions appears to be in place at the moment.

“Even so, the French debt situation is delicate and has already become Europe’s top concern. The trajectory of France’s public finances does not look entirely promising.

“The path to bringing the deficit below 5% is going to be very difficult.

“Could this crisis affect banks, as happened during the 2012 euro crisis? I don’t think so, given that the banking sector is in much healthier shape now than it was then. At present, banks are more necessary than ever as a vehicle for financing all the stimulus plans. They have very strong balance sheets, and although their exposure to French debt may weigh on them in the short term, their fundamentals are solid and they are not a concern for us.

“The outlook is less optimistic when it comes to the euro as a currency and its exchange rate against the dollar. Mapfre AM’s view is moderately positive on the dollar and moderately negative on the euro, because inflation expectations are structurally higher in the United States than in Europe.

“Can third-quarter earnings support today’s high stock market valuations? This will be a key factor for market performance in the coming months. Analysts have been underestimating expected earnings, and we believe conditions are in place for companies to keep reporting better-than-expected earnings, especially if we move into a more secondary phase of AI investment, with broader participation across sectors and companies.”