France’s rising borrowing costs expose the dangers of ballooning public debt, but another bailout would weaken the entire euro system. The yield on France’s 10-year government bonds has risen to 4.9 percent . Rising government bond yields reflect diminishing trust in public finances, with France emerging as the greatest concern. Investors are demanding greater compensation for the risk of lending to the French government. This risk premium makes debt servicing more expensive, while issuing new debt to finance the government’s excessive spending becomes increasingly difficult. France is not alone in heading in this direction. In the business world, borrowers in this position would be candidates for junk status.
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