The timing is striking. On Thursday, September 18, as France is partly paralyzed by a day of union-led protests against budget proposals and still lacks a fully functioning government, a historic milestone was reached on the financial markets. For the first time, the interest rate demanded by investors to hold French government debt matched the rate required for Italian government debt. In the eyes of investors, Italy is now considered as credible as France, despite carrying a heavier debt burden.

Early in the morning, the yield on 10-year government bonds stood at 3.475% for both France and Italy. Back in 2011 and 2012, Italy was seen as so volatile, so unreliable both financially and politically, that investors demanded up to 400 basis points (4%) more than the French rate. When France was paying 3% annually, Italy had to pay 7%. This "risk premium" was still 180 basis points in October 2022. Since then, it has gradually decreased until it reached zero on Thursday.

Since the rates at which the French Treasury issues debt each week are very close to market rates, France should now have to pay as much as Italy to borrow. If the trend continues, it may soon have to pay even more.

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