French debt turmoil has thrust Europe’s fiscal pressures into sharp focus in recent weeks, but investors’ attention is quickly turning to Italy amid contentious new government spending plans.

The Italian government will next week present a budget encompassing recently approved allocations to defense and energy, which are set to widen the country’s deficit over the next two years and put Italy’s debt-to-GDP ratio on track to become the highest in Europe, according to analysts at Goldman Sachs.

Filippo Taddei, senior European economist at Goldman, said the changes could heap further pressure on Italian government bonds ahead of next year’s general election.

On Oct. 2, Prime Minister Giorgia Meloni’s center-right government approved an extra 28 billion euros ($31 billion) in borrowing over the next two years for defense and energy spending. Although scaled back, the spending plans have raised Italy’s 2027 deficit target to 3.4% of GDP, and its 2028 target to 3.2%. That’s up from earlier April projections of 2.8% and 2.5%, respectively, and above Goldman forecasts.

The measures — which are split evenly between defense and energy, with each worth about 0.3% of GDP per year in 2027 and 2028 — come amid rising investor jitters over runaway government borrowing across the continent.

France’s benchmark 10-year OAT yield dipped 3 basis points on Friday to 4.85%, amid lower oil prices. Yields on 10-year Italian BTPs were last seen 5 basis points lower at 4.55%. The spread between 10-year German Bunds, the benchmark for eurozone debt, and Italian BTPs was about 108 basis points by 1:40 p.m. CET (7:40 a.m. E.T.)

Taddei said Italy’s fiscal risk premia could rise ahead of the country’s next general election, due no later than December 22, 2027, on the back of the widening deficit.

A close-run election could leave little scope for fiscal consolidation, as parties on both the right and left look to “add spending-supportive partners” to build viable coalitions, he explained.

“Looser fiscal policy, tighter financial conditions and a close electoral race appear poised to weaken the debt outlook after four years of fiscal consolidation,” he said in a note Thursday.

Meloni’s administration — which will deliver its final pre-election budget next week — has been praised for lowering the deficit,…