France's bond market is flashing a warning. Earlier this month, French 10-year bond yields rose to the highest level since 2002, and the premium over equivalent German yields widened to the most since the eurozone debt crisis in 2011. Those moves later eased, but investors still see growing risk in France's public finances.
The pressure comes from a familiar problem: spending. According to Paul Krugman, France's persistent failure to confront retirement costs is feeding the debt crisis. He said the country's government pension plan has forced cutbacks elsewhere, especially in education. France's official retirement age for full benefits was 62 in 2023, while the average actual retirement age was 60.4 years, the lowest in Western Europe.
That squeeze is showing up on the streets. Students have been rioting over missing teachers, run-down classrooms, and buildings that are not equipped for rising temperatures. Protesters blame years of underinvestment in public education. Krugman linked the unrest directly to the state's retirement generosity, arguing that France is handing large subsidies to older citizens at the expense of everyone else.
The numbers are getting harder to ignore. France's budget deficit is estimated at about 5.4% of GDP, and its debt-to-GDP ratio is expected to rise to 122% next year from 119% this year. Rising debt-service costs are adding to the strain as yields climb, making future borrowing more expensive and leaving less room for productive spending.
President Emmanuel Macron tried to raise the retirement age to 64, but political pushback stalled the effort. Marine Le Pen, the front-runner in next year's presidential election, has vowed to roll it back to 62 and has previously suggested going as low as 60. Krugman called that approach expensive and said financial markets now view 'fantasy economics' as a bigger problem for France than for the rest of the developed world.
Thierry Wizman and Gareth Berry, global strategists at Macquarie, said the longer the protests continue, the more likely the government is to approve more spending, which would worsen the debt burden. They warned that higher bond yields would then make that added borrowing even more expensive, creating a self-reinforcing cycle.
For taxpayers, the lesson is blunt. When retirement politics dominates the budget, education gets squeezed and borrowing costs rise. Capital punishes governments that refuse to make the arithmetic work.
France is now paying for years of delay in the only currency markets recognize: higher yields, weaker fiscal flexibility, and a growing social bill. The market has already priced the cost of pretending that benefits can outrun reality.
