French government bonds are facing an increasingly severe pricing test. The France-Germany bond spread has widened to around 150 basis points, a level rarely seen in history, but bond market analyst Robert Burrows warns that the widening spread does not mean French government bonds already offer sufficient investment value. If investors still bet on the spread reverting to its historical average, they may be underestimating the room for further deterioration in France's fiscal risk.

France's problem lies not only in its heavy debt burden, but also in intensifying political fragmentation and the difficulty of advancing fiscal consolidation. At the same time, Germany's capacity for economic and fiscal support is also being questioned. The intertwined risks of these two major economies mean the problem is no longer confined to France itself, and could unsettle the stability of the eurozone as a whole.

In an article on the Bond Vigilantes website, Burrows pointed out that during the European debt crisis, the spread between Italian government bonds and German government bonds once exceeded 500 basis points. This is not a forecast for the trajectory of French spreads, but rather an illustration that once markets lose confidence in fiscal sustainability and European rescue mechanisms, spreads can far exceed the range suggested by historical experience.

Whether the European Central Bank can effectively control the risk is also uncertain. Unconditional support for France may weaken its incentive for fiscal consolidation, while refusing to intervene may push up financing costs, aggravate debt pressure, and transmit risk to other member states. At the same time, whether Germany can continue to serve as the eurozone's "anchor" is also facing a test.

Historical spreads are no longer reliable, and the eurozone's rescue capacity faces a test

For investors accustomed to viewing France as a core sovereign debt issuer in the eurozone, a France-Germany spread of around 150 basis points may be seen as a signal of excessive market pessimism, and thus become a reason to bet on spread narrowing. But this strategy depends on one premise: that France's fiscal situation and credit risk have not fundamentally changed. Burrows believes this premise is being challenged.

During the European debt crisis, the spread between Italian government bonds and German government bonds once exceeded 500 basis points. This historical case does not mean that French spreads will necessarily reach the same level, but it shows that when markets begin to question fiscal sustainability and the rescue capacity of European institutions, spreads can break far beyond historical ranges.

The European Central Bank's policy tools are also not without boundaries. Its Transmission Protection Instrument (TPI) is designed to address disorderly market fluctuations lacking fundamental justification, but its activation requires assessing the fiscal sustainability of the country concerned and its compliance with the EU policy framework. If the rise in French spreads reflects a deterioration in fiscal fundamentals rather than unjustified market pressure, the ECB's room for intervention may be limited.

This puts European institutions in a dilemma: unconditional support for France may weaken its motivation to advance fiscal consolidation; refusing to intervene may push up France's financing costs, further worsen its debt situation, and intensify risk transmission within the eurozone. Therefore, whether France can propose a credible fiscal consolidation plan is crucial, while the upcoming presidential election adds uncertainty to policy continuity.

Germany's supporting capacity should also not be overestimated. During the crisis, funds flowing into German government bonds and driving their relative outperformance against other eurozone government bonds reflected investors' demand for a safe haven, rather than meaning that Germany has sufficient fiscal space to support other member states without limit.

With France's fiscal pressure intensifying and Germany's supporting capacity being questioned, the buffer mechanism for the eurozone to respond to sovereign debt risk may weaken. The France-Germany bond spread is therefore not only a barometer of France's credit risk, but also a test of whether European institutions can prevent risk from spreading. France's debt is difficult to resolve easily, and once the crisis spreads, Europe may not necessarily have the ability to bail it out easily either.