Is Europe Facing Another Debt Crisis?

European sovereign bond spreads are signaling that investors are reassessing the safety of government debt as fiscal pressures and geopolitical risks intensify.

• Since the Iran war began, the spread between 10-year French government bonds and German Bunds widened by 81 basis points to 137 bps on 5 October 2026, its highest level since the 2011–2012 Eurozone debt crisis.
• France’s net debt-to-GDP ratio reached 117.6% in Q1 2026, up 4 percentage points from a year earlier, while four prime ministers in five years have struggled to agree on fiscal measures; the government is targeting a deficit of 5% of GDP despite nominal growth of only 3%.
• France’s planned increase in defense spending from 2.2% of GDP in 2025 to 5% will further constrain fiscal flexibility unless major structural reforms are implemented.
• Italy’s spread reached 113 bps, its highest level in 16 months, while its debt-to-GDP ratio rose to 138.9% in Q1 2026, up 1.6 percentage points year over year, despite a more responsible fiscal path and relatively stable politics.
• Spain remains better positioned, with a 63 bps spread, average nominal GDP growth of 8% and real growth of 3.8% over the past five years, but its debt-to-GDP ratio of 101.6% and snap elections scheduled for 29 November introduce new political and fiscal risks; Germany remains the benchmark with debt at 64.4% of GDP.

Takeaway: Investors should be cautious about treating developed-market government bonds as unquestioned safe havens, particularly in France and Italy, because higher defense spending and persistent deficits are reducing fiscal room; Spain has made progress but faces renewed political uncertainty.