UBS CEO warns ‘hard measures’ are needed to tackle French debt crisis, as turmoil worsens

UBS CEO Sergio Ermotti has told CNBC that "hard measures" are needed to tackle France's spiraling debt crisis, warning that "small, incremental changes" will not be enough. Speaking to CNBC's "Squawk On The Street" on Tuesday, Ermotti compared the ongoing turmoil in Europe's bond market with the eurozone's sovereign debt crisis in 2011, warning that the size of France's economy means that its problems could be trickier to tackle this time round. "We went through similar situations in the last 10 to 15 years in Spain, in Italy, in Greece, in Portugal," Ermotti said. "These countries that went into a big crisis are now the best performing countries in Europe." Other parts of Europe now facing a debt squeeze may now require "something similar" to "restore a credible path to growth". Asked if that meant austerity, Ermotti said: "It needs to go through hard measures… incremental small changes are not going to be enough to resolve the big debt pile." Yields on French government bonds — known as OATs — have jumped in recent weeks amid a broader sovereign debt sell-off in Europe, as investors grow increasingly concerned about the country's fiscal position. France's benchmark 10-year note yield stood at 4.7689% on Tuesday afternoon after easing 9 basis points. Borrowing costs are now higher in France than in Greece and Italy. Far-right presidential candidate Marine Le Pen on Tuesday pledged huge spending cuts to get debt under control, warning that France ultimately risks defaulting on its debt. Mitch Reznick, head of cross-border credit at Federated Hermes, said in a Tuesday note that the country has quickly become the prime focus of the continent's bond woes, and suggested its debt is increasingly being priced "less like core Europe and more like the periphery." He added investors are abandoning French government bonds for quality in German Bunds, which is magnifying the spread between the two. Reznick said the European Central Bank remains unlikely to intervene at this point — but added that "its language could start to change" if spreads continue to gap out. "The OAT-Bund spread has moved above 140 basis points, as attention turns to France's high debt, large budget deficits, increased bond supply and political uncertainty ahead of the presidential election," said Reznick.