Europe’s sovereign debt market is undergoing a major shift as borrowing costs rise and governments prepare to issue record amounts of bonds in 2027. Countries once considered high-risk borrowers, including Greece and Portugal, have strengthened their public finances, while Belgium and France face growing pressure from deficits, rising debt and political uncertainty.
The change challenges the traditional divide between northern Europe’s financially stable economies and the southern countries that struggled during the eurozone debt crisis. Belgium now pays a 10-year government bond yield of 4.29%, close to Greece’s 4.35%, according to figures cited in the original report. France, meanwhile, has faced higher borrowing costs than Italy, another country long associated with elevated sovereign debt risk.
These differences matter because government bond yields determine how much countries must pay investors to finance public spending and refinance existing debt. When yields rise, governments face higher interest bills, leaving less money available for public services, investment and other priorities.
The shift also comes as European governments prepare to borrow heavily to cover maturing bonds and fund spending. With the International Monetary Fund (IMF) warning that borrowing costs across major advanced economies have reached their highest levels in nearly two decades, the cost of refinancing public debt is becoming a growing concern.
Ken Egan, head of European sovereign credit at rating agency KBRA, told Euronews that investors had traditionally focused on risks in Europe’s southern economies. Over the past decade, however, several of those countries have improved their fiscal positions, strengthened tax collection, extended debt maturities and repaired their banking systems.
Those changes have reduced some of the refinancing risks that contributed to the eurozone crisis more than a decade ago. Greece, for example, recorded a budget surplus of 1.7% of gross domestic product in 2025, while its public debt ratio fell by more than nine percentage points in a single year. Although Greece still carries Europe’s highest public debt burden relative to the size of its economy, its improving fiscal position has helped change how investors assess its ability to repay what it owes.
Belgium has moved in the opposite direction. Its budget deficit reached 5.2% of GDP in 2025, compared with 5.1% in France, while Belgian public debt rose above 109% of GDP in the first quarter of 2026. The combination of persistent borrowing needs and a rising debt burden has increased scrutiny of the country’s finances.
Egan said some traditionally stronger economies were also facing greater political uncertainty, rising structural spending pressures and higher refinancing costs than they had become accustomed to during the years of low interest rates.
France illustrates that change particularly clearly. Public spending accounts for 57.2% of its economic output, the highest proportion in the Group of 20 major economies, according to the figures cited in the report. Its public debt has reached approximately EUR 3.6 trillion, equivalent to 119% of GDP, compared with 98.2% before the COVID-19 pandemic.
The country’s borrowing requirements are adding to investor concerns. On September 29, the French Treasury announced plans to issue EUR 340 billion in medium- and long-term bonds in 2027, a record amount and an increase from EUR 310 billion in 2026. The planned issuance is equivalent to roughly 11% of the country’s annual economic output.
Not all this borrowing will finance new government spending. A substantial share will replace existing debt as bonds issued during the pandemic and the energy crisis reach maturity. However, refinancing those obligations at today’s interest rates will cost more than replacing them did when borrowing was cheaper.
France paid an average interest rate of 3.55% on medium- and long-term bonds issued so far in 2026, up from 3.14% in 2025. Its annual interest bill is forecast to increase from EUR 62.6 billion in 2026 to EUR 72.9 billion in 2027. That would absorb a substantial share of government revenue, reducing the room available for other spending decisions.
For investors, the purpose of borrowing is becoming as important as the amount involved. Egan told Euronews that markets distinguish between debt used to support investment and future economic growth and borrowing that primarily covers an expanding interest bill.
Germany is also issuing a record EUR 512 billion in securities in 2026, but its borrowing is intended in part to finance defence and infrastructure. Italy and Spain, meanwhile, face their own substantial refinancing requirements.
The broader pressure is reflected in the IMF’s assessment of government debt across advanced economies. The Fund has warned that a large share of public debt in the Group of Seven economies and Spain is due to mature within a year. When governments must refinance bonds so frequently, changes in market interest rates can feed into national budgets much faster than they would if debt maturities were spread over longer periods.
That distinction is important because higher bond yields do not automatically mean a country is approaching a debt crisis. They can also reflect uncertainty about future budgets, inflation, political decisions and the amount of debt investors must absorb. The Swiss private bank Lombard Odier has argued that markets are currently pricing uncertainty rather than the conditions for another eurozone sovereign debt crisis.
France still has some financial advantages compared with countries that faced severe funding problems in 2012. Its interest payments remain slightly above 2% of GDP, according to the bank’s assessment, and its current account deficit is relatively small. During the earlier crisis, Greece, Portugal and Spain relied much more heavily on foreign capital, leaving them vulnerable when international financing dried up.
Lombard Odier expects pressure on French borrowing costs to persist until the government secures approval for a credible budget. Its assessment, cited in the original report, suggests that uncertainty could continue into the period surrounding France’s May 2027 presidential election. That is a forecast, not a certainty, and the eventual direction of yields will depend on fiscal decisions and market conditions.
Clara Raposo, vice-governor of the Banco de Portugal, has also warned that sovereign bond markets are increasingly sensitive to inflation, public finances and geopolitical developments. She said financial shocks can spread quickly between countries, particularly when investment funds respond to uncertainty by selling assets across several markets.
The IMF has identified another concern: in an increasing number of countries, the interest rate on new government borrowing exceeds the rate at which the economy is growing. When that happens, the debt burden can increase even without additional borrowing to finance new programmes, unless governments generate sufficient budget surpluses before interest payments.
Higher yields can also create a feedback loop. Investors demand greater returns because they are concerned about a government’s finances. The resulting interest bill then puts further pressure on the budget, potentially prompting investors to demand an even larger premium. Political uncertainty or a weak budget proposal can accelerate that process.
Changes in the bond market’s investor base add to the challenge. The European Central Bank bought large quantities of government bonds for years, supporting demand and helping keep borrowing costs low. It has since moved away from expanding its bond holdings, leaving governments more exposed to the prices private investors are willing to pay. Those investors may react more quickly to fiscal news, inflation and changes in global financial conditions.
The economic consequences can extend beyond the country facing the immediate pressure. Research published by the Centre for Economic Policy Research earlier in 2026 examined how concerns about government debt influence companies’ expectations for inflation. Using a randomised experiment involving German firms in the Bundesbank’s business survey, which covers roughly 7,000 companies, researchers found that pessimistic projections for the combined debt-to-GDP ratio of France, Italy and Spain raised German firms’ expectations for inflation three years ahead by 1.4 percentage points among those who distrusted the European Central Bank.
The findings suggest that doubts about public finances can influence expectations beyond national borders. If businesses believe the ECB will be reluctant to raise interest rates because of the financial pressure higher rates would place on heavily indebted governments, they may expect inflation to remain higher.
This creates a difficult balance for European policymakers. Governments must manage debt and maintain investor confidence while financing essential services, infrastructure and defence. Central banks, meanwhile, must control inflation without ignoring the economic consequences of higher borrowing costs.
There is no clear evidence in the cited assessments that Europe is already experiencing a repeat of the 2012 sovereign debt crisis. But the changing relationship between borrowing costs, fiscal policy and investor confidence shows why the old distinction between a financially secure northern core and a debt-strained southern periphery has become less useful.
As governments prepare their 2027 borrowing programmes, the central question is no longer simply which countries carry the most debt. Investors are increasingly weighing how governments manage that debt, how much it costs to refinance and whether economic growth will be strong enough to keep the burden under control.
