France's Debt Squeeze Rattles Bond Markets as Student Protests Spread
France's borrowing costs have hit their widest gap with Germany since 2012, as student protests and a presidential election complicate deficit cuts.
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France is facing a two-front fiscal test. Students are on the streets demanding more money for schools, while bond investors are demanding higher returns to keep lending to the state. The government cannot satisfy both.
The numbers
French public debt stood above $4 trillion in June, larger than the country's annual economic output, according to the national statistics agency. Servicing costs have risen by billions of dollars over the past year as yields climb.
Last week's selloff pushed the gap between French and German borrowing costs to its widest since 2012, the height of the eurozone debt crisis. CNN reports the euro followed, sliding on Monday to around $1.12, its weakest against the dollar since May 2025.
Pressure from both sides
Spending demands are rising. An ageing population is lifting pension costs, and Paris wants to increase defence budgets. Nationwide protests by high school and university students, since joined by workers, have added calls to fix teacher shortages, overcrowded classrooms and deteriorating buildings.
The government responded last week with a package of deep spending cuts and tax rises to narrow the deficit. Markets doubt it will survive intact. Capital Economics' Andrew Kenningham said in a note that lawmakers may dilute the measures before next year's presidential election, and warned of a significant risk that spreads widen much further.
That election is the bigger unknown. President Emmanuel Macron could be succeeded by a candidate from the far right or far left. Marine Le Pen's National Rally has proposed substantial spending cuts, but Kenningham noted that it also remains committed to expensive tax reductions.
Contagion risk
France is the eurozone's second-largest economy, which makes its problems hard to contain. Angel Talavera of Oxford Economics told CNN the potential for spillover into other member states is very large and could trigger a serious regional crisis.
The pressure is not limited to Paris. Yields on German and UK government bonds have also hit multi-year highs in recent weeks as investors question the sustainability of public debt across the continent.
What is at stake
The timing is awkward. Europe's recovery had been gathering pace, helped by AI investment, stronger export demand and German defence spending. Survey data showed euro area manufacturing and services activity growing last month at the fastest rate in almost three and a half years.
Higher yields threaten that momentum. They raise borrowing costs for households and companies, weigh on investment, and push governments toward austerity to calm markets. ING's Carsten Brzeski told CNN that rates will keep rising unless governments cut spending.
The bottom line
France needs to spend less at the moment its citizens are asking it to spend more, with an election 12 months out. Until that tension resolves, expect French spreads to stay volatile and the euro to stay under pressure.