London — The unprecedented wave of student protests in France has laid bare the country’s growing financial pressures, which will be harder to address as Europe’s second-largest economy tries to curb a growing budget deficit. The country’s finances are in a precarious state. Public debt surpassed $4 trillion in June, surpassing the size of the economy, according to the country’s statistics agency. The cost of servicing that debt has risen by billions of dollars from last year as bond yields rise. At the same time, demands on the public purse are increasing: pension costs have risen due to an aging population, while the government seeks to spend more on defence. Meanwhile, high school students have called for a solution to staff shortages, overcrowded classrooms and crumbling school infrastructure. Solutions to France’s financial problems have caused social unrest in the past. Efforts to raise the retirement age sparked widespread protests in 2023. Last week, the French government proposed deep spending cuts and tax increases aimed at reducing the budget deficit, but bond buyers are concerned that lawmakers could water down the fiscal measures before next year’s presidential election, said Andrew Kenningham, chief European economist at consultancy Capital Economics. In the election, President Emmanuel Macron could be ousted by a far-right or far-left successor, raising questions about the country’s commitment to fiscal discipline. While Marine Le Pen’s right-wing National Rally party recently proposed substantial spending cuts aimed at stabilizing public finances, her party also remains committed to costly tax cuts, Kenningham said. “Investors will also be concerned about increased fiscal populism after the election,” he wrote in a note last week. “There is a big risk that spreads will widen much further, either before or after next year’s election.” Concerns about a possible debt crisis in France boiled over last week, prompting a sell-off in French bonds and a sharp rise in yields. The spread between French and German bond yields has expanded to its widest level since 2012. That difference in yields means investors are demanding much higher yields to hold French debt compared to Germany, which is seen as a safer alternative. The fall in French bonds has raised fears of contagion effects to other European high-yield debt markets, and some analysts have drawn parallels with the eurozone debt crisis of the early 2010s. Given the size and systemic importance of France, “the potential for contagion to other countries and the eurozone in general is very large and could cause a serious crisis throughout the region,” Ángel Talavera, chief European economist at Oxford Economics, an advisory firm, told CNN. These concerns pushed the euro on Monday to its weakest level against the dollar since May 2025. The currency, shared by 21 European Union countries, is worth about $1.12, having briefly fallen below that level. The latest market turmoil could weigh on a fragile economic recovery in Europe, driven by investment in artificial intelligence, higher demand for European exports and higher defense spending in Germany. Recent survey data showed manufacturing and services activity in the euro zone rose last month at its fastest pace in almost three and a half years. “(Economic) growth is returning and Europe has shown surprising resilience,” Morgan Stanley economists wrote in a late September note. However, high bond yields are a clear risk to that growth. If governments don’t cut spending, “interest rates will continue to rise,” Carsten Brzeski, head of macroeconomics at Dutch bank ING, told CNN. Higher bond yields raise the cost of borrowing across the economy, making home and car purchases more expensive and reducing investment. They also make government borrowing more expensive and force a certain degree of austerity to be applied to prevent yields from continuing to rise. Government bond yields in France, Germany and the United Kingdom have broken multi-year records in recent weeks as concerns grow about the sustainability of public debt loads. Europe’s public finances pose “serious risks to financial markets and the eurozone economy,” Jack Allen-Reynolds, deputy chief eurozone economist at Capital Economics, told CNN.
