Euro Pressured by Fiscal Fears in Major EU Economies While Swedish Krona Faces Rising Borrowing Costs

The euro has dropped to its lowest level in nearly 18 months amid growing market fears over weak public finances in major eurozone countries. Early trading on October 5, 2026, saw the euro fall to 1.12 dollars, its weakest rate since May 2025. The primary catalyst for this decline is concern over France’s large budget deficit, rising government debt, and political instability ahead of the upcoming presidential election, which has pushed France’s government bond risk premium to heights not seen since the 2011 euro crisis. Spain’s political uncertainty and the prospect of snap elections have further intensified the pressure on the euro.

At the same time, the US dollar is strengthening due to expectations of further interest rate hikes by the Federal Reserve, exacerbating the euro’s challenges and contributing to a depreciation of the Swedish krona against the dollar. The krona has weakened by nearly five percent recently, crossing the threshold of 10 kronor per dollar.

Sweden’s Riksgälden, the government’s borrowing agency, is feeling the impact of this global rise in interest rates. Karolina Ekholm, director of Riksgälden, explained that as global and Swedish interest rates move in tandem, Sweden’s borrowing costs have increased. Although Sweden benefits from a relatively low national debt, which is a cushioning factor compared to more heavily indebted countries like France, Italy, and the USA, the current environment raises concerns about market confidence and the potential for financial volatility.

Ekholm highlighted that the projected budget deficit for Sweden could reach 208 billion kronor by 2027, necessitating increased government borrowing. Additionally, there are ambitious plans for financing expansions in defense spending and new nuclear power projects, including a proposed loan framework of 220 billion kronor. These initiatives face scrutiny under EU state aid regulations and involve complex planning for nuclear waste management.

The uncertainty surrounding the Swedish government’s budget proposal complicates Riksgälden’s financial forecasts, while the depreciation of the krona and global monetary tightening add further challenges. Ekholm also warned that during times of financial turmoil, investors typically retreat from smaller markets, increasing Sweden’s vulnerability.

Overall, Europe’s fiscal uncertainties and rising global interest rates are exerting downward pressure on the euro and elevating borrowing costs for Sweden, underscoring the interconnectedness of economic and political factors impacting currency valuations and public financing across the continent.