What Is Happening In France?
Politics, Debt, and Riots
Contents
- Introduction
- The Riots In France
- France and Debt
- The Eurozone Sovereign Debt Crisis
- Concluding Remarks
Bitesize Edition
- France’s Protests — What began as protests over declining education standards and the cost of living has expanded into wider unrest. The involvement of trade unions and groups suggests that these grievances reflect deeper, longstanding frustrations within French society.
- France’s Debt Problem — With public debt exceeding 119% of GDP and a budget deficit above 5%, France faces increasingly difficult fiscal decisions. High taxation limits the scope for further increases, while spending cuts risk worsening the very social conditions contributing to the unrest.
- The Euro’s Vulnerability — As a member of the Eurozone, France does not control its own monetary policy or have an independent central bank to support its government bond market. This creates similarities with the European sovereign debt crisis, when countries such as Greece, Italy and Spain faced rising borrowing costs and concerns about their ability to service their debt.
- France’s Potential Debt Crisis — The ECB ultimately helped contain the previous crisis through bond purchases and Mario Draghi’s commitment to do whatever it takes to preserve the Euro. France’s growing debt burden, economic weakness and political instability raise questions about whether similar intervention could become necessary again. However, the country’s political situation may prove to be an equally significant obstacle to resolving the crisis.
Introduction
In the last month in France, we’ve seen rioters taking to the streets. Since this started, we’ve seen the situation expand and escalate.
Today, we’re going to discuss recent events and some potential reasons behind this internal tension. Let’s discuss below.
The Riots In France
The riots were then initially reported on October 17th. We’re over two weeks past this, and these protests are still continuing. Halloween saw another weekend of demonstrations across France.
In this initial riot, an expected 550,000 people were on the streets nationwide, with organisers claiming the true total was closer to 800,000.
1200 people were arrested, tear gas and water cannons were used, and buildings were set alight, including Limoges town hall.
But this violence isn’t how it started. Initially, a peaceful protest started in the afternoon in Paris. The BBC reported that the group referred to themselves as “pacifists” who were “trying to make things change.”
As the day continued, however, the escalation of violence began, and it remains today.
The key question then is why these riots are unfolding.
The key reasons initially provided were tied to the initial strikes in schools.
Students have protested over declining standards in education, with staff shortages and old facilities. Trade union members and other protest groups have since joined, including the “gilet-jaunes”, who protested the cost of living back in 2018 for more than a year. This was one of the longest protests in French history.
So, these are the reasons that have been presented on the surface. But these protests have been unfolding for close to a decade. This points to a much deeper situation.
This much deeper situation is connected to French politics and French debt.
France and Debt
Currently, France’s public debt-to-GDP ratio is 119.4%. Only Greece and Italy have higher debt-to-GDP rates within Europe.
Per inhabitant, this is equivalent to €52,404 of debt per person in France.
Now, debt-to-GDP captures a static moment in time. The future trend is also worrying.
The current public deficit is 5.1% of GDP. For the full year of 2026, this is expected to rise to 5.4%.
The deficit represents the difference between what a government spends and what it earns.
If a government spends more than it earns, then it is in deficit. In this situation, something needs to make up the gap between what a country earns and what it spends.
Often, this occurs through borrowing, printing money, cutting spending, or increasing economic growth, among other strategies.
France is disadvantaged as part of the Eurozone. The European Central Bank (ECB) determines monetary policy, such as interest rates and money printing, which leaves this out of France’s individual control.
Currently, the world is experiencing inflationary pressures due to supply chain issues from the war in the Middle East and Ukraine’s strategy targeting Russian refineries. With inflationary pressures, money printing could increase these pressures.
Also, with inflationary pressures elevated, raising interest rates is often a strategy that is pursued to reduce the demand for spending. For France, if the ECB does raise interest rates, then borrowing costs on new debt or refinancing would be even higher at a time when its deficit is 5.4%.
Also, if growth is low, this doesn’t make a large enough difference towards tackling a deficit. France, typically, has low growth.
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If France cut spending, then the declining quality of public services, such as the issues with education standards, would worsen even more.
In some countries, raising taxes is also an option. In France, the current tax burden is 46% of GDP. This places France near the top of OECD countries. In the United States, the U.S. burden is 25.6% of GDP, while the UK, which is also seen as being in a tough financial situation, sits around 35%, below the EU average.
For France, this paints a picture that there are no good options to address this deficit.
Could this see a debt crisis emerge in France, similar to the EU sovereign debt crisis seen back in the aftermath of 2008?
The Eurozone Sovereign Debt Crisis
In the aftermath of 2008, the EU Sovereign Debt Crisis highlighted the weakness that European countries were borrowing in a currency they didn’t control.
This gave them all individually worrying characteristics that a singular entity (The ECB) couldn’t address.
This left Greece, Italy, Ireland, Portugal, and Spain especially vulnerable, but for different reasons.
- Greece — High government debt and persistent deficits.
- Italy — Entered the crisis with high public debt, which was worsened by the 2008 crisis.
- Ireland — The banking crisis transferred private-sector liabilities to the government.
- Portugal — Weak economic growth and deteriorating public finances.
- Spain — A property market collapse had contagion effects on the banking sector and the wider economy.
As investors grew concerned with the lack of control these nations had over their finances, they demanded higher returns on government bonds. These bonds were individual to the nations, despite them sharing the Euro.
But as tensions rose, investors were more worried about default risk. This created a doom loop, where yields rose further, refinancing debt thus cost more, and this put further pressure on finances. Investors then demanded even higher yields for the risk of holding these countries’ bonds.
In response, the ECB purchased the bonds of these struggling nations on the secondary market. Due to Article 123 of the Treaty on the Functioning of the European Union, the ECB can’t directly purchase government debt. The purchases on the secondary market were deemed crucial.
The ECB essentially created central bank money to purchase these bonds. Initially, the ECB withdrew the same amount from the banking system to keep liquidity constant. This strategy was eventually scrapped with the QE of 2015, which did see broader asset purchases, including government bonds.
The biggest strategy that worked, however, was then ECB President Mario Draghi reinforcing that the ECB had the capacity and the will to address this issue. Draghi proposed the Outright Monetary Transactions, which would see the ECB purchase sovereign bonds under certain conditions. This was never activated, but the narrative helped to restore enough positive market sentiment that helped alleviate the crisis.
But still, these countries struggle today, and the signs of this period remain.
Italy has also been hit with prolonged economic weakness and a lack of growth.
Some nations, to address these weaknesses, pursued austerity. This reduced spending and increased taxes, which can contribute to declining quality of public services and less disposable income. This sounds similar to the cost of living issues and the declining quality of facilities that many are protesting against in France, especially in the education sector.
France also finds itself in a similar economic situation today to that of these struggling nations after the Great Financial Crisis. This situation isn’t identical to these other vulnerable nations, but France is displaying similar fiscal problems that do leave it vulnerable, such as high debt burdens, fiscal deficits, and limited control of monetary policy.
One issue that makes France’s case especially worrying is that this isn’t only a monetary crisis; the country is also embroiled in a political tussle. This has contributed to the current protests and riots also being somewhat focused on general political dissatisfaction. We’ll discuss this next time.
Concluding Remarks
We’ll continue to explore these riots in France later on this week.
For France, this is shaping up as a potential crisis arising from five different origins. We’ll highlight these crises clearly on Thursday. One crisis is a struggle to navigate, but with five potential sources of tension within France, it could be set for a prolonged period of strain.
There are also developments in the Middle East, such as the Israeli elections and developments in Syria, as well as the upcoming U.S. midterm elections tomorrow. In the coming weeks, we’ll break these issues down, too.
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