France Faces Tug‑of‑War Between Street Protests and Market Pressure on Spending

Eight years have passed since a surge in fuel costs sent the gilets jaunes (yellow vest) protesters onto French streets, triggering the first major test of Emmanuel Macron’s presidency.

As President Macron prepares to step down next year, unrest has flared once more on the streets—this time led by student demonstrators—while financial markets grow uneasy.

Investors worry that the government has failed to curb spending and end a prolonged era of fiscal laxity. Similar pressures in the United Kingdom, United States and Italy have rattled global bond markets, but France stands out as the principal concern, burdened by public and private debt that hampers efforts to escape a worsening fiscal gap.

In 2025 France’s debt‑to‑GDP ratio reached 115.6 % and its budget deficit stood at 5.1 %, compared with 94.3 % and 4.3 % for the United Kingdom.

In the United Kingdom, Chancellor John Healey is on track to trim the budget deficit this year and again in 2027. His French opposite number, Roland Lescure, has pledged to pursue a similar path after the deficit rose to 5.4 % this year, though he has not detailed the measures.

‘I am panicking’

Business investment is suffering amid the uncertainty. A poll conducted by Medef, France’s leading employers’ group, found that 82 % of firms expect the next administration’s economic stance to harm them, and two‑thirds warned that prolonged policy deadlock could leave their companies exposed—or even drive them into bankruptcy.

While the European Central Bank could step in with a rescue package, France would likely insist on unconditional aid, even though the ECB’s framework normally ties any bailout to strict conditions.

Antonio Fatas, an economics professor at INSEAD, warns that France’s political and economic tensions have brought the country to the brink of a financial crisis. He says, ‘I am deeply concerned about the economy: growth is sluggish, the outlook is unclear, and the debt levels are troubling, leading markets to doubt the government’s grip.’ He adds, ‘When I turn to politics, I feel panic—many parties seem eager to let France descend into chaos, hoping that turmoil will boost their electoral fortunes.’

France’s economic woes echo those seen in the United Kingdom and the United States. A massive spending surge during the COVID‑19 pandemic was later followed by a fresh wave of subsidies aimed at cushioning the blow from Russia’s full‑scale invasion of Ukraine in 2022.

Lenders have grown cautious about extending credit to the UK, US and France, yet the increase in borrowing costs is most pronounced in France.

Last week the yield on ten‑year French government bonds climbed to its highest point since July 2002, approaching 5 %. Recall that bond yields rise when prices fall.

Japanese investors, who have long viewed French assets as a safe haven for their savings, have intensified the sell‑off after discovering more attractive yields domestically, adding further strain on France’s finances.

Political turmoil

Despite several indicators that should work in France’s favour—such as comparatively low electricity prices and solid infrastructure—it remains unclear why the country is facing such severe strain.

The educational institutions at the centre of the recent protests receive funding above the OECD average.

On the downside, Macron’s proposal to lift the retirement age from 62 to 64—which would have saved tens of billions of euros from a largely state‑run pension system—stalled at 62 years and nine months after the 2024 snap election left parliament deadlocked. The reform’s limited impact is compounded by the fact that Macron’s vaunted economic revival has failed to gain momentum.

Laurent Warlouzet, a history professor at the Sorbonne, notes that international investors find France puzzling, especially as presidential front‑runner Marine Le Pen promises to revert the retirement age to 62 while simultaneously calling for a referendum‑driven ‘debt brake’ that would curb new borrowing.

He observed, ‘The far right has traditionally acted as a spend‑thrift populist force, a tendency amplified under Le Pen’s leadership as it broadened National Rally’s appeal in the country’s industrial heartlands. As recently as 2016‑17 she still advocated pulling France out of the eurozone, viewing the single currency as a restrictive straitjacket.’

Warlouzet, author of Liberty, Solidarity and Community: Capitalism and European Integration, 1945 to the Present, added, ‘Le Pen has unexpectedly turned into a fiscal hawk. How can she square that stance with her supporters’ calls for more nurses, teachers, police officers and judges?’

Warlouzet, the author of Liberty, Solidarity and Community: capitalism and European integration, 1945 to the present, added: “Nowadays, Le Pen has become an improbable fiscal hawk. How can she reconcile this with her voters’ demands for more nurses, teachers, police officers and judges?”

‘Too big to save’

Erik Britton, director of Fathom Consulting, an international advisory firm, argues that the looming April runoff between far‑left leader Jean‑Luc Mélenchon and Marine Le Pen has unnerved investors more than the government’s inability to trim the yearly deficit.

He notes that the calculus has shifted: the second round now appears set to pit Le Pen against Mélenchon on the far left. A Le Pen victory would carry roughly a 20 % chance of a French exit from the euro (Frexit), whereas a Mélenchon win—though currently seen as less probable—would imply a substantially higher risk of Frexit.

Britton warns that the disintegration of the political centre would reverberate well beyond France’s borders, noting that ‘where France leads, the euro area tends to follow. Should the euro face another stress test, debates over debt sharing and mutualisation would resurface, pushing bond yields upward across the currency bloc—except perhaps in Germany—and beyond.’

While it may strike traders as unlikely that France would abandon the euro—given its central role since the currency’s launch—several eurozone finance ministers and ECB officials have privately urged the French administration to craft a budget capable of securing parliamentary approval and winning the confidence of major creditors.

In the absence of a budget, France could be left to fend for itself. Should investors shun French government bonds without demanding a substantial yield premium, the state might be pushed toward default, and any eventual bailout would carry a steep price tag.

As Nobel laureate Paul Krugman recently observed, ‘If France ever required a bailout, the cost would be enormous. As the eurozone’s second‑largest economy, it may have already moved from being “too big to fail” to being “too big to save.”’

Dhaval Joshi, an independent City economist, warned that France will inevitably need to undertake painful fiscal adjustments to bring its debt dynamics under control—similar to the reforms Italy, Spain and Greece implemented a decade ago, which ultimately strengthened those economies. He added, ‘The key issue remains how much political suffering France must endure before it is compelled—or chooses—to take those steps.’

Last week the head of France’s central bank, Emmanuel Moulin, denied that the country requires ECB assistance, yet he added the qualifier ‘not at this point,’ which only heightened market anxieties.

Albert Edwards, a senior global strategist at Société Générale, argued that France could weather the pressure from bond‑market vigilantes—traders who hunt for weak sovereigns—as long as another economy begins to show signs of fragility. He noted that the vigilantes’ attention has recently lingered on France but is apt to shift next month to Japan, the United Kingdom or the United States. ‘Their tactic,’ he explained, ‘is to probe each market repeatedly, identifying the weakest link before mounting a full‑scale assault.’

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