Why is the French economy, and the country in general, in such a mess?

Violent protests, volatile politics and a government strapped for cash are making life difficult for people across France. And there’s no end in sight.

More protests are planned for Saturday, and the unrest is expected to continue right up to the presidential election, which will take place over two rounds in April and May.

Meanwhile, the government is battling to push through its 2027 budget, but with no party or coalition in control of the National Assembly, the country could enter the new year without a fiscal plan.

In a further blow to the government’s deteriorating financial situation, the yield on France’s benchmark 10-year bond topped 5 per cent Wednesday for the first time in 24 years. The higher yield reflects the return wary investors are demanding for holding French debt and will add billions of euros to government borrowing costs.

Violent protests rock France ahead of spring presidential elections

There’s growing concern that the spread in yields between French and German bonds, which are considered a much safer bet, has jumped to levels not seen since the European debt crisis of 2012, when Greece, Spain, Portugal and other countries buckled under massive debt loads and required financial rescue packages.

“The uncertainty now is very big − bigger than probably any other time I can think of in the past in France,” said Antonio Fatas, a professor of economics at INSEAD business school in Fontainebleau, France. “Everything is going to spill over to other countries. I hope we can avoid what happened in 2012 because that was painful in some countries.”

How bad are France’s public finances?

By almost any measure, France is reeling under a mountain of debt that most economists say is unsustainable.

The public debt − the total amount the country owes − has increased from 60 per cent of gross domestic product in 2000 to 118.7 per cent in 2026, or about €3.6-trillion.

It’s expected to top 120 per cent of GDP next year, surpassed only by the debt loads of Italy and Greece among European Union countries.

Government spending has been rising faster in France than in almost every other EU country and currently stands at 57 per cent of GDP, according to the Bank of France. That’s second only to Finland among the 21 European countries that use the euro. The average across the euro zone is 47.8 per cent of GDP, and back in 1995 France ranked fifth.

The big driver has been a sharp increase in spending on social programs, including the state pension, which now represent 32.2 per cent of GDP, according to the Bank of France. The average across the euro zone is 27.2 per cent of GDP.

What has the government proposed?

Finance Minister Roland Lescure, a former chief investment officer at the Caisse de dépôt et placement du Québec, has proposed €43-billion in spending cuts to bring the annual deficit down to 5 per cent of GDP in 2027 from the current level of 5.4 per cent.

That’s still among the highest in the EU and well above the 3-per-cent target set by the bloc. Brussels has set a deadline of 2029 for France to meet the threshold.

Mr. Lescure’s budget also contains measures that would no longer fully index pensions above €1,260 per month. It also calls for a freeze on public-sector salaries and changes to state-funded sick benefits.

There are already signs that he will miss his deficit target.

The government expects interest payments on the national debt to increase to €91.2-billion next year from €62.6-billion in 2026, partly owing to rising bond yields. In a recent forecast, the Institute of French Economics (IFE) said it expected the deficit to remain at 5.4 per cent of GDP next year.

All of this is based on the presumption that the budget will be adopted. Given the fractious makeup of the National Assembly, it’s far from certain MPs will approve it. Even if they did, the new president taking office in May will likely have his or her own budget proposals.

French authorities impose curfews after weekend of riots

So what are the alternatives?

Polls show the leading contenders in the presidential race are Marine Le Pen of the far-right National Rally and Jean-Luc Mélenchon of the far-left France Unbowed. Both have radically different approaches to government finances.

Ms. Le Pen has proposed far deeper spending cuts that would total €140-billion in net savings by 2032 and meet the EU deficit target by 2030. She also plans to introduce a constitutional “golden rule” that would limit future deficits.

Most of her spending cuts would come from a reduction in French contributions to the EU, the elimination of nearly all state agencies and slashing immigration. She also wants the European Central Bank to offer France some debt relief.

Her plan also includes returning the retirement age to 62, which is set to increase to 64. Some economists say that could cost as much as €34.7-billion annually.

Mr. Mélenchon has proposed an €82-billion “emergency spending” package that includes pay raises for civil servants, a higher minimum wage and a monthly payment of €1,337 for every French student.

He also wants to cancel the roughly 18 per cent of the public debt held by the Bank of France, which would total about €600-billion worth of bonds. ”All we have to do is take the 18 per cent held by the Bank of France and chuck it in the fire,” he said in a campaign speech last month.

What’s the outlook?

Not good.

The IFE’s forecast said economic growth will be around 0.5 per cent next year, roughly half what the government hoped. And that was before violent protests shook the country last week and damaged at least 3,000 small businesses.

The government has promised some compensation, but the country’s Fédération du Commerce et de la Distribution, which represents retailers, said the damages could run into the hundred of millions.

Alexandre Bompard, the chief executive of the supermarket chain Carrefour, said this week that 50 of his company’s stores had been looted and hundreds forced to close because of curfews and violence.

The impact on the company’s operating income could be between €80-million and €200-million this year, added chief financial officer Matthieu Malige. “In the weeks to come we will continue to be impacted, as some stores have to close earlier due to curfews, and more broadly we think we’re in a new situation marked by deep uncertainty for our customers,” he said.

Authorities across the country have issued more curfews and banned protests in certain neighbourhoods.

During a debate in the French Senate on Wednesday, Interior Minister Laurent Nuñez said police were preparing to manage another round of major protests slated for Saturday. “I assure you of my resolve, and the hand of the state will not waver,” he told the senators.