France is paying the highest price in four years to borrow for a decade. On Wednesday the yield on its 10-year bond touched 5%, a level last seen in 2022. The gap with German bonds widened to 159.4 basis points. At the start of September it was around 85. Nothing else in the euro area has moved like that this autumn.
The trigger is visible. Rioting followed a nationwide march on Saturday 17 October that police counted at about 550,000 people. Roughly 1,500 shops were hit and 2,400 people were arrested, according to the interior minister and the retail federation. The damage is now reaching company accounts. Carrefour cut its full-year profit forecast and blamed the turmoil in France for keeping shoppers away. Its shares fell by the most since 2020.
President Emmanuel Macron, for his part, accused foreign leaders of using the riots for political purposes. Investors are looking elsewhere. They already doubted that a government with debt close to 110% of GDP and a fractured parliament could cut its deficit. A crisis that makes spending cuts harder to pass confirms the doubt.
Most analysts are drawing a line between this and the euro crisis. Deutsche Bank chief Christian Sewing called it "a wake up call" on budget discipline but said, "I wouldn't call it a debt crisis at this point in time." US Treasury Secretary Scott Bessent said he expects no spillover. The numbers support the calm: while French spreads widened in October, Italian and Greek premiums narrowed.
The reasons are structural. The 2010-12 crisis spread through banks that held the debt of weaker members. That is no longer the case, and the ECB now has a crisis toolkit it lacked then. Jonas Goltermann of Capital Economics says France's problems are still a long way from a full rerun. He also warns that French politics will make things worse before they improve, and points to Italy's 2018 standoff with Brussels, when the spread peaked at 325 basis points before the government backed down.
Absolute Strategy Research argues that any contagion would run through foreign investors, not banks. They hold 57.5% of French government debt, against 35.9% of Italian bonds. Insurers, in particular, could be a weak spot. France is also now less than 3% of global GDP, half its share in 1980, so it matters less to the world than it once did. It matters a great deal to the euro area.
Elsewhere, the unrest has not stayed inside France. Writer Dave Keating, reporting from the European Parliament in Strasbourg, says protesters in Germany, Italy, Belgium and Spain are citing the French riots as inspiration, and that MEPs fear the far right will profit from a promise of law and order. Their causes differ by country, he notes. The mood, increasingly, does not.
This week's tests are lined up. Moody's reviews France's Aa3 rating on Friday. The European Central Bank meets on 29 October, and French unions have called a national strike for 5 November. A downgrade could force funds with rating limits to sell, and push the spread beyond its 15-year high. The market is not pricing the end of the euro. It is pricing a French government that cannot pass a budget, ahead of a 2027 election in which Marine Le Pen is the frontrunner. That is a political risk, and no central bank can buy it away.
