France’s Fiscal Crisis Sparks Fears of New Eurozone Debt Crisis

France’s deepening fiscal crisis and political unrest are raising alarms across the eurozone, with economists warning of a potential new debt crisis. The country’s public deficit has ballooned to 5.8% of its gross domestic product, surpassing the EU’s 3% threshold, while its debt-to-GDP ratio is projected to hit 121.7% by 2027. The euro has weakened against the US dollar, falling to 1.116, its lowest level in 18 months, as borrowing costs climb to around 4.5%. Analysts worry that France’s financial woes could spread to other eurozone nations like Italy, Belgium, and Greece.

The French government, led by Prime Minister Sebastien Lecornu, has proposed a €54 billion austerity package to cut the deficit to 5% by next year, but the plan has sparked widespread protests. Firefighters, public sector workers, and students have taken to the streets, demanding better funding for education and other services. The unrest has led to clashes with police, with hundreds injured and over 5,000 facing legal action. Meanwhile, inflation in France has risen to 3.4%, driven by surging energy prices, further straining household budgets.

Economists are divided on whether France’s crisis will trigger a broader eurozone debt crisis. Some, like Thu Lan Nguyen of Commerzbank, argue that bond market volatility is no longer confined to France and is becoming a major concern for investors. Others, such as Deutsche Bank’s Jim Reid, suggest that markets may be overreacting. The yield spread between French and German 10-year bonds has widened significantly, nearing levels not seen since 1990, signaling growing investor anxiety.