The recent escalation of social tension in France, featuring an intense wave of protests and riots over the high cost of living, has ultimately dealt a direct hit to market confidence in the country’s sovereign debt.
The spread between the yield on the 10-year French bond and the German bund (France’s risk premium) has surged to near 148 basis points. This is a peak level not seen since 2012, during the worst of the eurozone sovereign debt crisis.
The unrest acts as the trigger for an underlying concern: the French government’s ability to correct the imbalance in its public finances.
- France presents a public deficit around 5.4% of GDP (well above the 3% target set by Brussels).
- Its public debt is climbing toward 120% of GDP.
- The protests highlight the massive political difficulty of pushing through fiscal reforms aimed at cutting spending or raising revenue.
Political uncertainty and the heavy costs stemming from the riots (millions in material damage to infrastructure and businesses) have translated into:
- Falls in the Paris Stock Exchange (CAC 40) exceeding 1.2% – 1.5%.
- A moderate contagion effect on other European stock markets and the value of the euro.
- Demands from investors for higher yields (exceeding 4.8% on the 10-year bond) to finance the French state.
The projected economic scenario for the country points to sluggish growth (around 0.4% in 2026). The combination of low growth, a high deficit, and unrest in the streets hampers fiscal consolidation, putting the debt sustainability of the Eurozone’s second-largest economy firmly in the spotlight for the European Union and rating agencies.
