France’s Budget Vote Looms as Protests Deepen Debt Fears

Nationwide protests over the cost of living swept France on Saturday, with rioting and looting reported in some cities. The unrest comes as public debt reaches a record $4 trillion, or 119% of GDP, and lawmakers approach a critical budget vote Tuesday.

French bond yields have risen to their highest levels in 24 years. Mujtaba Rahman, Europe managing director at Eurasia Group, said markets fear political gridlock will prevent France from taking steps to control its deficit.

Prime Minister Sébastien Lecornu’s proposed 2027 budget would bring the deficit down to 5% of GDP from 5.4%. Rahman warned that if the government fails to pass it, the cost of servicing French debt may surge and the country could need assistance from the International Monetary Fund and the European Central Bank.

Political proposals have added to investor concerns, Rahman said. Far-right leader Marine Le Pen has vowed to lower the official retirement age to 62, while far-left candidate Jean-Luc Mélenchon has proposed that the central bank cancel its holdings of French debt.

Thierry Wizman, a global foreign exchange and rates strategist at Macquarie Group, argued that France may face several further shocks before it can reassure bond investors. He said the European Central Bank would not move quickly to help, partly because of concerns about encouraging “moral hazard.”