Northern Trust believes that France's fiscal imbalance has transmitted from the sovereign debt market to the bank credit market. Due to French banks holding a large amount of domestic government bonds, pressure in the sovereign debt market is affecting the risk pricing of bank financing. Market data fully reflects France's credit pressure: the yield on France's 10-year government bonds rose by 67 basis points in September; the spread between French and German government bonds more than doubled; the credit default swap (CDS) spread for French banks has increased by more than 50% over the past six months; France's fiscal deficit for 2024 is projected to be 5.5% of GDP, with the 2027 budget draft aiming to reduce the deficit to 5.0%, still above the EU's 3% standard. France's sovereign credit risk is being transmitted to financial institutions, primarily due to long-term poor economic performance, which is also a typical reflection of the many issues hindering Europe's competitiveness: a lackluster economy, insufficient capital to support entrepreneurship or productive investment, and stringent labor protection measures that limit workforce mobility. These problems have persisted for a long time, but every attempt at reform has invariably faced protests. Ultimately, maintaining a state of fiscal imbalance has become the "path of least resistance." However, there is still significant divergence within the European bond market: France is under obvious pressure, while Italy remains relatively calm. Northern Trust believes that the European Central Bank is likely to consider using the Transmission Protection Instrument (TPI) to purchase bonds only if pressure in the French market spreads to other Eurozone countries. This means that France will need to rely on fiscal adjustments to stabilize its bond market.