In looking at the EUR/USD chart yesterday, it would be easy to write off the drop below 1.1200 as being simply another story about a stronger dollar. However, the euro's slide to a 17-month low around 1.1160 also tells us something about what is happening much closer to home.Quite simply, France's budget problems are starting to become the euro's problem too.Now, the concern itself is relatively straightforward. For years, France has been struggling to convince investors that it can meaningfully bring its budget deficit under control - particularly with a divided political backdrop, which makes fiscal tightening even harder to deliver. And that uncertainty has been showing up most clearly in the bond market.Investors are currently demanding a bigger premium to hold French government debt over the much safer German bunds, pushing the French-German 10-year yield spread sharply wider. And this is where the story starts to move beyond France itself.As the chart shows, EUR/USD fell sharply in early trading yesterday before recovering some ground. The drop saw the pair briefly touch its weakest level since May 2025.But you might ask, why should problems with France's budget matter for the euro?That is because markets aren't just asking the question of whether France can fix its finances anymore. They are also asking whether rising French borrowing costs could spill over into other parts of the euro area.If that were to happen, then this stops being a purely French risk story and starts becoming one about euro area fragmentation risk.Just think of it as a chain reaction. To start, French fiscal concerns push French bond yields higher. Then, wider spreads will raise questions over whether that pressure could spread to countries such as Italy or Belgium. That in turn makes European assets less attractive at the margin and adds a fundamental reason for investors to reduce their exposure to the euro.Besides that, there is the ECB angle in looking at this as well.If higher borrowing costs lead to tighter financial conditions and begin weighing on growth, the central bank may have less room to keep raising interest rates. And that becomes even more relevant when US Treasury yields remain elevated on the other side of EUR/USD, continuing to offer support to the dollar. It is a double whammy of sorts with more pressure on the euro at home, while higher yields in the US provide a tailwind for the dollar on the other side of the trade.Now, I wouldn't say that France alone is what caused the euro selloff yesterday. Dollar strength and elevated Treasury yields clearly played their part too. But in falling to a 17-month low, I would argue that French fiscal risk can no longer be treated as an isolated story confined to the bond market. If and when French spreads continue to widen, the euro is going to become one of the clearest places where that stress shows up. This article was written by Justin Low at investinglive.com.