Sacre Coeur Basilica, Paris.
On October 22, France's ten-year government bond yield reached its highest level since 2002. At the same time, protesters were already on the streets all over the country, demanding more social spending.
Those are both responses to the same economic cleavage, but each of them signifies a different road for the government to take. The trade-off between reassuring investors and satisfying the citizens seems to be more and more impossible to make. With public debt predicted to approach 120% of GDP for 2026 and the next year’s budget still in parliamentary deadlock, the government stands at a crossroad, because austerity measures threaten to deepen public dissatisfaction and prolong the riots.
Rising public debt and sovereign borrowing costs have increased the pressure on the French government to pursue fiscal consolidation in order to keep its credit ratings and stay within the Maastricht Criteria. On the other hand, addressing deteriorating living standards and underfunded public services, as well as rising inflation with almost no wage adjustment is the primary source of discontent. This contradiction could explain how initially student-led demonstrations against inadequate education funding developed into nationwide protests involving workers from various industries, while the insufficient government response contributed to the persistence of the unrest. Although lower-income extremist groups and confrontations with the police have played a role in the escalation of violence, the underlying fiscal tensions provide a broader explanation for the unrest. The resulting political instability, economic disruptions and declining investor confidence pose the risk of a further increase of France’s borrowing costs, which could limit governmental policy freedom even further.
France’s troubles have not gone unnoticed by financial markets. The rising fiscal strain becomes evident after a look at the surge in the benchmark 10-year French government bond yield (OAT), which broke through the 5.1% threshold, peaking at 5.1415% last month[34]. The increase marks France's highest borrowing costs for the OATs since July 2002; it is also the first time since 2013, when the 10-year bond yield rose above the equivalent US Treasury yields.
And behind these figures lies a growing concern among investors over France’s ability to bring its public finances under control. Yields move in the opposite direction to bond prices, so when investor confidence in the repayment capabilities of the country drops, a sell-off usually gets underway, pushing bond prices down and forcing yields to rise to compensate for the increased risk.
The sell-off, however, was not driven by France's fiscal troubles alone but rather by a combination of domestic political uncertainty and international economic developments. The government struggling to adopt the 2027 budget and the ongoing protests have contributed to the rising risk premium. At the same time, the surge in global energy prices, with oil going above $110 per barrel in October, has renewed inflationary pressures across the eurozone.
This has fuelled expectations of further interest-rate hikes by the European Central Bank (ECB), that could push borrowing costs up across European bond markets, including the French one. Eurozone inflation has reached 3.8% in September well above the 2% target, therefore the ECB finds itself under growing pressure to contain rising prices. The rate increases in June and September allow it to hold rates for now, but economists surveyed by Reuters anticipate another 25-basis-point increase in December[33]. The expectations can affect government bond yields together with a country's creditworthiness, because when investors expect tighter monetary policy in the long-term they demand higher returns on long-dated bonds, making it more expensive for governments to raise new debt.
For France the ECB control of the interest rates adds to an already complex situation. Higher interest rates weaken economic activity by directly influencing household borrowing, consumption and corporate investment. Slower growth, in turn, limits the government's ability to increase tax revenues to reduce the debt burden.
As reported by Francesco Canepa for Reuters, ECB President Christine Lagarde has stated that the country must address its fiscal problems through consolidation, while the bank's emergency bond-purchasing instruments, sometimes used to avoid further economic deterioration in countries facing fiscal pressures, are primarily intended to counter unjustified market fragmentation rather than compensate for unsustainable national fiscal policies.[6]
At first glance, France's 5.1% bond yield might not seem particularly alarming, especially considering that it is not far from the yields on equivalent US Treasury bonds. However, the comparison becomes more concerning when France is measured against other major European economies, operating within the same monetary union and sharing the ECB's policy, like Germany. On October 22, the spread between French 10-year government bonds and their German equivalents widened to nearly 178 basis points, its highest level since November 2011 during the eurozone sovereign debt crisis. Germany's bonds are widely regarded as the eurozone's safest sovereign debt, making them a benchmark against which investors assess the risk of lending to other member states. The widening gap therefore reflects the growing premium demanded by investors to hold French debt instead of German bonds. While rising yields have affected much of Europe, the particularly sharp increase in France's borrowing costs suggests that investors are not only concerned about the broader economic environment, but also about the country's ability to restore confidence in its public finances.
With public debt approaching 120% of GDP and the budget deficit expected to reach 5.4% in 2026[10], the government has struggled to convince markets that its fiscal trajectory is sustainable.
The problem is not simply the size of debt, but also the increasingly limited prospects of bringing it under control. With economic growth remaining stagnant, the government has to find a way to boost the economy without taking on more loans. Meanwhile, the growing cost of servicing existing debt threatens to absorb the capital needed for investment and essential public services.
It is also important to note that the impact of rising bond yields is more gradual than immediate. Most French government bonds carry fixed interest rates, so existing bonds mature and are to be repaid at the initially agreed amount. Still, the government has to issue new ones to repay those that have expired and with each refinancing round the increase becomes more visible. Over time, this could boost the share of public expenditure used for interest payments and worsen the situation with the budget deficit.
As already established, to satisfy investors and prevent further deterioration of its public finances, France needs to find a way to reduce its budget deficit and slow down the accumulation of public debt. That is why the government has proposed a rather ambitious fiscal consolidation plan. The draft envisages an adjustment of approximately €54 billion, including €43 billion in new measures, with the objective of bringing the deficit down from 5.4% of GDP in 2026 to 5% in 2027. Around €25 billion would come from spending cuts, while another €18 billion would be accounted for by revenue. Some of the disputed proposals are the freezing of public-sector wages and smaller pension increases, cuts of approximately €4 billion in healthcare and less finances for local governments, also some changes to tax reliefs are planned.[23].
And the government's ability to translate these proposals into the actual budget remains crucial both for reducing the deficit and for maintaining the confidence of international credit-rating agencies.
And when it comes to credit ratings, in October Moody's unexpectedly maintained France's sovereign credit rating at Aa3, despite the widespread expectations of a downgrade. Yet the decision offered little reassurance. The agency retained its negative outlook, making it clear that its assessment depended on the adoption of a credible deficit-reducing budget for 2027, alongside an easing of financing costs and social tensions. In other words, France was granted just additional time to take up fiscal consolidation.
But with the protests still going on and taking into account the upcoming presidential elections, such a budget seems less and less possible. The fragmented composition of the French National Assembly, where Prime Minister Sébastien Lecornu's government lacks an absolute majority, creates the need for an agreement between factions. To secure parliamentary approval, Macron's centrist bloc and its conservative allies would need to attract support, or at least abstentions, from opposition parties.
Yet with the elections scheduled for April 2027, the political incentive to compromise is rapidly shrinking. For the left, supporting spending cuts or unpopular tax measures could undermine their credibility among left-wing voters, especially at a time when demonstrations continue to highlight public dissatisfaction with the government's consolidation policies. Meanwhile, Marine Le Pen's National Rally and the radical-left La France Insoumise have little incentive to associate themselves with the government's fiscal program ahead of the elections.
And to illustrate this, on November 4, the National Assembly rejected the revenue section of the proposed 2027 budget by 458 votes against and none in favour. Even those aligned with the government voted against the proposal, because the parliamentary amendments had changed its original form, for example according to government estimates the revised version would have pushed the projected deficit for 2027 from the initially targeted 5% to approximately 5.9% of GDP.
The government's original draft was sent to the Senate, leaving its final adoption unresolved. Lecornu could still resort to Article 49.3 of the Constitution to pass the budget without a parliamentary vote, but doing so would expose his minority government to a potential no-confidence motion.
As a consequence, a further deterioration in France's creditworthiness is not impossible, given the little chance of survival the consolidation budget seems to have. This could make borrowing more expensive, putting additional pressure on public finances and potentially creating a self-reinforcing cycle of rising repayment costs and even less room for social spending.
The proposed fiscal consolidation measures raise an important question about the distribution of their costs and specifically about who would bear the burden of regulating the fiscal problem.
For households dependent on the budget spending like pensions, social benefits or public services the consequences could be more noticeable. Even measures that do not involve direct spending cuts, such as freezing pensions or certain public budgets, could leave people worse off in real terms. With rising prices, unchanging incomes can decrease purchasing power while public institutions like schools and hospitals face growing costs without a corresponding increase in resources.
What the government presents as a necessary step towards fiscal stability is therefore perceived by parts of the population as yet another reduction in the support they receive from the state.
The global events in recent years and rising energy prices have contributed to growing inflation in the EU, which impacts specifically lower-income households, which spend a larger share of their monthly income on essential goods and services. Often the same groups are the ones that rely on public spending the most. According to the Banque de France's September 2026 projections, average wages were expected to increase by only 2% in 2026, falling behind inflation and resulting in a decline in purchasing power[1]. Meanwhile, weak economic growth persists and unemployment has reached 8.3% in the second quarter of 2026, impacting job security and future income prospects, especially among younger generations.
Dissatisfaction is also growing over the quality of public services. Shortages of teachers, overcrowded classrooms and inadequate school facilities have raised concerns about the quality of education[16], while healthcare workers have pointed to staff shortages and worsening working conditions[12].
The shared interests when it comes to adapting to inflation and maintaining high standards in public services have contributed to bringing together groups with otherwise distinct demands. While some oppose cuts to social spending for schools and hospitals, others are concerned about higher taxes, stagnant wages or deteriorating working conditions. Despite their different priorities, they share a growing dissatisfaction with the government's handling of the economic situation.
And for many a way to express those concerns has become taking to the streets. What initially began as student demonstrations over inadequate educational funding has therefore expanded into a broader protest movement involving workers from various sectors and has even spread to other European countries.
The wave of demonstrations initially began in September, when high school students started protesting against the conditions in the country's education system. Initially it was all about teacher shortages, overcrowded classrooms and poorly maintained school buildings, but it soon spread beyond the school grounds, with students organising blockades and demanding greater investment in the sector. By September 30, demonstrations had already disrupted 356 high schools across the country, while clashes with the police had resulted in dozens of injuries and hundreds of arrests[28].
Police interventions, including the use of tear gas and water cannons against students, brought further attention to the movement and raised questions about the authorities' handling of the demonstrations. According to the Associated Press, more than 6,600 arrests had been made since the beginning of the protests in late September[25].
Despite the government's attempts to calm the situation, the demonstrations continued, gradually attracting groups whose demands went far beyond education. Healthcare employees, transport workers and trade unions joined students in calling for higher wages, improved working conditions and greater investment in public services. The CGT and other trade unions played an important role in coordinating demonstrations, bringing separate groups together. By mid-October the movement had already reached a nationwide scale with approximately 550,000 participants according to the Interior Ministry, but unofficially about 800,000 as estimated by the CGT[37].
The situation changed considerably on October 17, when demonstrations in several French cities escalated into some of the country's most violent civil unrest in years. Shops were attacked, vehicles and public buildings were set on fire and more than 1,200 people were arrested. The violence shifted public attention towards security and policing. While the government condemned the destruction and blamed extremist groups and individuals involved in criminal activity, the authorities' own handling of the demonstrations was also disputed.
This frustration is also reflected in public opinion. According to an Ipsos survey conducted on October 21–22, following the violent events of October 17, 81% of respondents held the government responsible for the situation, while 80% believed President Emmanuel Macron had failed to respond appropriately. Moreover, 58% considered that the violence could have been prevented through better preparation by the authorities[14].
Although these findings do not directly establish the economic causes of the protests, they reveal a broader lack of confidence in the government's ability to manage the unrest, extending beyond the individual grievances of demonstrators.
Yet the violence did not put an end to the movement. On November 5, hundreds of thousands of people again demonstrated across France, this time with even broader participation from workers and retirees. The Interior Ministry reported more than 600,000 demonstrators, while the CGT estimated nearly 1.6 million and over 200 demonstrations taking place nationwide[12].
The expansion of the protests therefore reveals how initially separate cleavages can develop into a wider expression of dissatisfaction with political institutions. Students demanding better schools, workers seeking higher wages and pensioners concerned about their living standards do not necessarily share the same objectives. However, their demands increasingly point towards a common concern over the government's priorities and its willingness to respond to them.
The increasingly violent nature of the demonstrations has also given rise to a different explanation of the unrest, one that places immigration rather than economic dissatisfaction as the core motivation for the participants. Several right-wing political figures from various countries have portrayed the events in France as a consequence of failed immigration and integration policies. US President Donald Trump claimed that the protests were about “immigration, not schools." Republican Congressman Keith Self went even further, presenting the situation as a warning of what could happen in the United States if immigration remained insufficiently controlled[7].
However, this explanation becomes less convincing when compared with the actual development of the movement. As discussed, the demonstrations originated in educational demands and later expanded to include workers from other industries. None of these initial objectives were directly related to immigration policy. This does not exclude the possibility that individuals from immigrant backgrounds participated in the violence, but their involvement alone cannot explain their motivations. Moreover, the absence of reliable demographic data on those involved in the riots makes it difficult to establish a direct relationship between immigration and the escalation of violence[7].
It is also important that the emphasis on immigration may also serve a political purpose for those adopting this narrative. By focusing on failed integration as the driver of the violence, domestic political actors can shift the attention away from the actual questions of fiscal consolidation and social spending. Additionally, border control and nationalistic policies already occupy a central place in the programs of many right-wing parties across the world. In the United States, for example, the Republicans' framing of the French riots was used in their mid-term election campaign.
However, the question of why demonstrations that began largely peacefully eventually developed into violent confrontations remains.
One possible explanation lies in the growing frustration with the perceived ineffectiveness of peaceful protests. When repeated demonstrations fail to bring meaningful political concessions, some participants may begin to see more disruptive actions as the only way to attract attention and put pressure on the authorities. In this sense, violence could be interpreted partly as a response to the belief that conventional forms of political participation are no longer sufficient. Nevertheless, this remains only a hypothesis rather than an established motivation of those responsible for the October 17 incidents.
The relationship between demonstrators and the police offers another important perspective. As Jon Henley[20] explains in The Guardian, French policing has historically been shaped by a centralised understanding of state authority, in which maintaining public order often takes priority over negotiating with demonstrators. Compared with several neighbouring European countries, France has relied more heavily on confrontational tactics during demonstrations. Such interventions can sometimes intensify tensions, particularly when peaceful demonstrators are caught in confrontations between the police and more radical groups. The resulting hostility may provoke further resistance, including from non-violent individuals, which in turn leads to stronger police intervention, creating a cycle where escalation constantly increases.
This does not mean that police behaviour alone explains the violence, nor does it excuse the looting, vandalism and attacks carried out by some participants. Rather, it demonstrates why the escalation of the riots cannot be reduced to a single cause. While the economic and social grievances provide a convincing explanation for the emergence and expansion of the demonstrations, understanding their violent development requires considering the interactions between protesters, radical groups, police forces and the authorities' response. The immigration centred narrative risks overlooking these dynamics and the underlying economic tensions that brought people onto the streets in the first place. And those are crucial to be understood and taken into account, because they are at the base of the economic consequences the riots could have.
The aftermath of the French protests has already been felt by businesses and financial markets. One of the clearest examples came on October 21, when shares in French supermarket giant Carrefour plunged by approximately 15%, wiping around €1.7 billion off the company's market value. The sell-off followed a downward revision of its annual earnings forecast, after the company estimated that the looting and store closures due to the demonstrations could reduce its operating income by between €80 million and €200 million. Around 50 Carrefour stores had been affected by the violence, forcing the retailer to account for damage, additional security costs and lost sales[27].
The damage was not limited to Carrefour. According to Euronews, the authorities had identified approximately 3,000 affected shops by October 19, while France's CAC 40 index fell by 1.1%, compared with a 0.9% decline in the broader European STOXX 600[9]. Luxury retailers were also affected, with damaged boutiques and additional security measures forcing some businesses to even close temporarily.
However, physical destruction is not the only problem, continued uncertainty over future demonstrations could discourage consumers from going shopping and lead to postponed investments. Retail, Hospitality and Tourism appear to be the most vulnerable sectors, as their revenues depend heavily on consumer confidence. According to Euronews, Parisian hotels have already experienced a slowdown in bookings[5].
The broader economic consequences of social unrest have also been examined in academic research. In a study published by the International Monetary Fund, Hadzi-Vaskov, Pienknagura and Ricci[19] find that a one-standard-deviation increase in their social unrest index is associated with GDP remaining approximately 0.2 percentage points below its pre-shock baseline six quarters later. For larger unrest episodes the estimated decline reaches around one percentage point.
Although these estimates cannot be directly applied to France's current situation, they illustrate why the economic costs could extend beyond the immediately affected businesses. Disruptions to transport and logistics can interfere with production and deliveries, while strikes and temporary closures reduce economic activity. If such developments persist, they could affect employment, investment and ultimately the government's tax revenues. The costs of repairing damaged infrastructure and providing additional security could also create further demands on public resources.
In this case, those effects are particularly concerning given the already limited room for spending. Slower economic growth could make reducing the deficit more difficult by weakening tax revenues, while additional spending to compensate affected businesses or address social demands could further complicate the government's consolidation efforts. A weaker GDP performance would also make it harder to stabilise the debt-to-GDP ratio.
Moreover, as already said, public unrest at this moment in France can make the adoption of the consolidation budget investors demand very difficult. More public unrest and growing demand for increase in social spending goes in the exact opposite direction of this budget. And if no austerity budget is accepted, a credit downgrade is possible to follow. That would not automatically lead to higher borrowing costs, but it could reinforce existing market uncertainty and place additional pressure on public finances.
The consequences are also political, with the presidential election approaching in 2027, as political parties propose different approaches to taxation, public expenditure and debt reduction.
Early opinion polls suggest that the unrest may already be influencing the political landscape. According to an Ifop-Fiducial survey conducted shortly after the October 17 violence, Marine Le Pen gained between one and two percentage points in voting intentions compared with a poll conducted just days earlier, while Jean-Luc Mélenchon's support remained relatively stable[39].
France's current crisis is about more than violent demonstrations or the government's inability to maintain public order. At its core lies a growing contradiction between what the financial markets demand and what the population expects. While investors are calling for fiscal discipline and credible austerity measures, citizens are demanding greater investment in public services, higher wages and protection from rising living costs. The government's limited ability to satisfy either side has turned what began as student protests into a nationwide movement, while credibility has dropped.
Reducing the unrest to immigration and failed integration policies risks overlooking the conditions that brought hundreds of thousands of people onto the streets in the first place. Although radical groups and confrontations with the police have contributed to the escalation of violence, neither explains the broader dissatisfaction that continues to fuel the demonstrations. More importantly, the consequences of the unrest threaten to worsen the very problems from which it emerged. Disruptions to economic activity, declining investor confidence and continued political instability could further complicate fiscal consolidation, increase borrowing costs and leave the government with even less room to address public demands.
With the 2027 presidential election approaching, France's challenge is no longer simply to restore order or pass a budget. It is to find a politically acceptable way out of a situation in which both austerity and inaction carry increasingly high costs. The greatest risk is that the country becomes trapped in a cycle where economic hardship fuels social unrest, while the unrest itself makes resolving that hardship even more difficult.