Please see below, an article from EPIC Investment Partners discussing the challenges for Eurozone economies. Received today – 10/10/2025
The euro was born out of a grand bargain: the stability of the core would anchor the discipline of the periphery. By stripping away the safety valve of devaluation and the natural brake of rising interest rates, the single currency was meant to force governments to live within their means. In practice, it did the opposite. Membership dulled market discrimination, allowing countries to borrow at rates that bore little relation to their economic fundamentals. For a while, the illusion held.
Greece was the first and fiercest warning. Flush with cheap credit after joining the euro, successive governments borrowed freely and spent lavishly, confident that default within the common currency was unthinkable. Beneath the surface, debt piled up, competitiveness eroded, and statistics were massaged. When the truth finally emerged in 2010, the reckoning was swift. The deficit was far higher than reported, the credibility of official data collapsed, and investors fled. Bond yields soared, funding evaporated, and Greece was forced into the first of several bailouts. The crisis exposed the structural flaw at the euro’s heart: a shared currency without a shared fiscal authority, where moral hazard was baked into the system. The warning was clear: markets might ignore imbalances for years, but when trust breaks, the punishment is sudden and unforgiving.
Fifteen years on, the pressure has shifted from the periphery to the core. France, long seen as the anchor of the eurozone, is testing the limits of the system in a different way. Its challenge is not an external liquidity squeeze but a domestic solvency problem: a political inability to stop borrowing. The country’s debt now exceeds 110% of GDP, while deficits hover around 6%, double the level permitted under European rules. Decades of high social spending and generous pensions have become politically untouchable, and attempts at reform have met fierce resistance. Tax cuts designed to spur growth have eroded revenues, leaving the government trapped in a cycle of chronic shortfalls.
For years, French bonds traded almost as safely as German Bunds. That calm has begun to fray. Investors are starting to price in not default risk, but dysfunction. Repeated government collapses and the use of constitutional shortcuts to force through budgets have undermined confidence in France’s ability to govern itself. The spread between French and German yields has widened to its highest in a decade, a quiet but telling signal that markets are losing faith in the country’s capacity to generate the surpluses needed to stabilise debt.
The parallel with Greece is uncomfortable. In 2010, Europe had the political will and the financial tools to contain a small nation on the periphery. France is different. It is too big to bail out and too central to fail. The European Central Bank can buy time with bond purchases, but it cannot manufacture consensus or rewrite budgets. The euro’s early lesson still stands: credibility, once squandered, cannot be printed. France’s fate will determine whether Europe has learned from 2010, or whether history is preparing to repeat itself once again.
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Alex Kitteringham
10th October 2025