The head of Switzerland's largest bank made the comments as yields on French government bonds continue to climb, with the benchmark 10-year note reaching 4.7689% on Tuesday. French borrowing costs have now surpassed those of Greece and Italy, a historic shift that has rattled investors.
Ermotti drew parallels to past crises in Spain, Italy, Greece and Portugal, pointing out that those countries are now among Europe's best performers after undergoing painful adjustments. He said France may require 'something similar' to restore a credible path to growth. When asked if that meant austerity, he replied: 'It needs to go through hard measures... incremental small changes are not going to be enough to resolve the big debt pile.'
Far-right presidential candidate Marine Le Pen has pledged to pursue significant spending cuts to bring debt under control, warning that France ultimately risks defaulting on its debt. The presidential election adds political uncertainty to an already fragile fiscal situation.
Mitch Reznick, head of cross-border credit at Federated Hermes, said in a note that France has quickly become the primary focus of Europe's bond market woes, with its debt increasingly priced 'less like core Europe and more like the periphery.' He noted that the spread between French OATs and German Bunds has widened beyond 140 basis points, as investors abandon French bonds for the safety of German debt.
Reznick added that while the European Central Bank is unlikely to intervene at this stage, 'its language could start to change' if spreads continue to widen.