That is a timer: France's debt-to-GDP ratio hit 113% last year. The budget deficit is 5.8% of GDP. Unfunded pension liabilities? Eurostat puts them near 400% of GDP.
François Bayrou knows he is walking into a trap. His confidence vote on September 8 is political theater, and not the entertaining kind. He does not have the numbers. Everyone can count.
The opposition does not agree on much, but they agree on this. The Socialists lined up with the National Rally and the hard left to bring the government down. Odd company, sure. Shared hatred of austerity makes quick friends.
The spark: a €44 billion package of cuts. Scrapping Easter Monday and May 8 as public holidays. Freezing welfare benefits. Cutting public services.
Voters hate it. Polls put opposition around 80 to 84%. Seven in ten want Bayrou out. Unions have called nationwide strikes for September 10 under a slogan only France could write: "Let's block everything."
Here is the part that should make your stomach drop. French 10-year yields now top Italy, Spain, and Greece.
Read that again…
France. Founding EU member. Second-largest economy in the euro area. The country that likes to talk about Napoleon's administrative genius. Now paying more to borrow than the countries that needed rescues a decade ago.
The OAT–Bund spread is roughly 80 basis points. French credit default swaps are up about 20% over twelve months.
"But Italy's debt is higher," you say. True. Italy sits around 138% of GDP and still gets better rates. The difference is the slope — Italy's deficit is projected to drift toward 2.9% by 2026. France's debt path keeps climbing, likely past 120% of GDP by the end of the decade.
Markets care less about where you stand today than where your feet are pointed.
A decade of negative rates and quantitative easing set the stage. Policy rates slid from about 4% in 2008 to below zero. Asset purchases flooded the bond market. Then came the anti-fragmentation tool — a promise to cap spreads if needed.
The intention was to save the euro. The side effect was to dull the pain that forces reform. If refinancing is cheap, reform can wait. If the central bank is a buyer, spending cuts are optional.
France played that score perfectly. Persistent deficits at artificially low rates. Structural fixes shelved. The pension fuse left burning.
Now Christine Lagarde warns that politics has an obvious impact on risk. Finance Minister Eric Lombard mentions the IMF as "a risk in front of us."
Intervene hard and reward bad behavior, or step back and watch a core member drift toward a crisis?
3 ways this ends
Muddle-through. Macron taps another technocrat. A thinner budget limps through. The deficit stays wide, debt keeps rising, markets keep flinching. Paralysis becomes the baseline.
Shock. Snap elections. A bet to break the three-bloc stalemate. Polls give the National Rally momentum — cohabitation with an anti-austerity platform becomes plausible. Markets will not like that.
Crisis. No stable government. Protests escalate. Investors give up. Yields spike past what the ECB can comfortably contain. France edges toward an external bailout.
Imagine a G7 country knocking on the IMF's door.
The first choice delays the pain. The second invites a storm. The third cracks the euro area.
Too big to fail, too big to save…
France is not Greece in 2010. The European Stability Mechanism is not built for a French-sized rescue. The ECB balance sheet is already heavy.
This is not just Parisian politics. It is the core of the European project. German and Italian banks hold a lot of French sovereign paper — if those bonds slide, balance sheets from Rome to Frankfurt feel it. The sovereign–bank loop can wake up fast.
The Transmission Protection Instrument now meets reality. To use it, countries are supposed to be fiscally compliant. France is not exactly a model student.
Intervene and you fuel moral hazard. Do nothing and you risk a broader break.
The euro's claim as a reserve currency rested on discipline and rules. France's situation shows what happens when you share a currency without sharing a treasury. Central banks can print money. They cannot print solvency.
This is the inversion: periphery paper beating core paper, the founding logic turned inside out. Anti-establishment parties across Europe are watching the French drama and taking notes.
The European project faces its toughest test, not from an external shock, but from slow internal decay. The center stops holding when the center stops governing.
France once taught the world how revolutions spread. It may now show us how monetary unions come apart.