France is facing one of its worst political, social and fiscal crises in years, and there is a sense things will get worse before they get better.
What started in September as high-school protests over teacher shortages and poor education standards in the Paris suburbs later grew into a much wider revolt over soaring fuel and living costs, a public sector pay freeze and a proposed austerity budget.
Last Saturday (17 October), public anger exploded into nationwide riots. More than half a million people took to the streets across France. Most marched peacefully. But violence broke out on the sidelines in several cities, with looting, arson and clashes with police.
When things finally calmed down, nearly 2,400 people had been arrested, interior minister Laurent Nuñez later said.
But even as protesters demand more teachers, smaller classes, higher wages and cheaper fuel, investors have been selling off French government bonds, worried that France cannot rein in its spending.
The gap between French and German 10-year borrowing costs, an important gauge of financial stability in the eurozone, reached almost 151 basis points on Tuesday, the widest since the eurozone debt crisis of 2011-2012.
But French politics is too divided to agree on the spending cuts bond traders want to see. And with presidential elections due in April, a quick resolution looks unlikely.
That leaves the central bank. The European Central Bank (ECB) could buy up French debt to bring borrowing costs down. It may even be forced to, if bond market panic spreads. But bailing out France is politically explosive, and depends on the judgement of the bank’s 27-member governing council.
For the time being, the ECB “is unlikely to say or do anything helpful,” Shahin Vallée, a senior associate fellow at the German Council on Foreign Relations (DGAP), wrote in a recent blog post.
Vallée, who is now an advisor to institutional investors, previously worked for Herman Van Rompuy who was European Council president during the eurozone crisis. He then joined Emmanuel Macron, France’s economy minister at the time, as advisor.
That background means he can speak with authority on everything from macroeconomics and bond markets to French politics and fiscal woes. EUobserver reached out to him to see what comes next.
Last week you were in Bangkok, where the IMF urged rich and poor countries to cut deficits and get debt under control. Is that the right medicine for France?
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