Borrowing costs imposed on the French government jumped to the same level as that of Portugal on Friday amid fears that political turmoil in Paris could spark a financial crisis.
There has been a growing sense of alarm among investors ever since Emmanuel Macron announced a snap election earlier this week.
However, pressures peaked on Friday as French borrowing costs on 10-year debt rose to 3.1pc, with rates matching that of Portugal for the first time since 2005.
While France is typically considered a “core” member of the eurozone, Portugal is normally described as being on the economic “periphery”.
Back in 2011 the latter was bailed out by the EU and International Monetary Fund during the sovereign debt crisis.
Concerns over the French economy led to the euro suffering its worst week against the dollar since April.
This was driven by fears that victory for Marine Le Pen’s National Rally at the polls would worsen France’s debt situation, potentially putting Paris on a collision course with Brussels.
Bruno Le Maire, the country’s current finance minister, warned on Friday that France faces a financial crisis if Ms Le Pen triumphs.
Holger Schmieding, chief economist at Berenberg Bank, said that if Ms Le Pen’s party takes control of parliament and investors take flight, the situation “could easily turn into a Liz Truss-style financial crisis”.
Peter Schaffrik at RBC Capital Markets added: “The worst outcome is that you get a real routing of Macron’s party, then he tries to cling onto office but there is huge pushback from the new MPs, and basically France becomes ungovernable for quite a while.”
The political instability in France has shaken confidence across the eurozone, with Krishna Guha, an analyst at Evercore ISI, claiming the snap election represents a dangerous moment for France and the continent overall.
He said: “It is hard to over-emphasise the importance for markets and the functioning of the EU that France continues to be viewed as a ‘core’ country with a sufficiently mainstream government to help lead the EU, and not part of the ‘periphery’ in either economic or political terms, in spite of its strained public finances.
“France is the largest high-quality bond market in Europe and the indispensable partner without which Germany will not be prepared to take additional steps to deepen integration and risk-sharing.”
Mr Guha added that the snap election has brought forward a “toxic set of risks that threatens a prolonged phase of dysfunctionality in the EU and in the tail could threaten a new euro crisis”.
It came as defence stocks across Europe tumbled on Friday, as investors fretted about the impact political instability could have on military spending.
Shares in London-listed BAE Systems dipped 3.6pc on Friday, while Milan-listed Leonardo fell 5.4pc.
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