French bonds and euro slide as weekend riots underscore fiscal crisis

LONDON/SINGAPORE — French bonds, stocks and the euro came under heavy selling pressure Monday after a weekend of violent protests underscored the political obstacles to reining in the country’s ballooning deficit, reviving fears that the euro zone’s second-largest economy is heading for a fiscal crisis.

France’s 10-year government bond yield jumped 13 basis points to 4.9%, on track for its largest one-day rise since late September, according to Reuters. The premium investors demand to hold French debt over German Bunds widened to 146 basis points, its highest in two weeks, though it has eased from the near 160 bps hit in early October when the French 10-year yield touched 4.99%, its highest since 2002.

The blue-chip CAC 40 index fell 1.5%, the worst performance among major European bourses, versus a 1% drop in broader European stocks. Shares of BNP Paribas and Societe Generale each fell 3%, and retailer Carrefour dropped 1.8%. Carrefour’s CEO said the company’s losses from protest damage would run into the tens of millions of euros, Reuters reported.

The euro weakened 0.2% to 0.3% against the dollar, pound and yen, trading at $1.1225 in early Asian hours before slipping further to $1.1210. The single currency’s decline helped steady the U.S. dollar index, which traded flat at 101.83.

**Protests and political paralysis**

Over the weekend, France experienced some of its worst unrest in years. More than 2,400 arrests were made on Saturday alone, according to authorities, with nearly 1,000 police and gendarmes injured and hundreds of businesses looted in Paris, Marseille, Lyon and other cities, Fortune reported. Interior Minister Laurent Nuñez admitted police “lost control” and offered to resign; President Emmanuel Macron refused.

Prime Minister Sébastien Lecornu ordered localized curfews Monday and did not rule out declaring a state of emergency, according to Reuters. The protests began in mid-September with high school students over missing teachers and overcrowded classrooms, then swelled to include anger over fuel prices and the cost of living.

Investors say France must pass a budget bill to rein in its finances, but the protests demonstrate how difficult that will be. Lecornu’s budget, which would cut the deficit to 5% of GDP from 5.4%, faces its first critical vote in the National Assembly on Tuesday, Fortune reported. Political jostling ahead of next year’s presidential election could further complicate matters.

“The fact this is coming after a weekend of protests shows that hopes for reform are in remission,” Hank Calenti, global market strategist at SMBC, told Reuters, referencing efforts to reduce deficits and reform pensions. Calenti noted the impact was being felt across the euro zone, with investors seeing hoped-for reforms in several markets as less likely.

**Spillover risks and credit concerns**

The jump in French yields raised fears of contagion to other heavily indebted euro zone members. Italy’s 10-year yield rose 11 bps to 4.58%, Reuters reported. The cost of insuring French sovereign debt against default also rose, with credit default swaps up 5 bps from Friday’s close to around 82 bps, still below the October 2 high of 89 bps but the worst performer on the day.

Ratings agency Moody’s will review France’s credit rating on Friday, which could result in a downgrade, according to Reuters. Analysts at Commerzbank said that as Moody’s is “merely catching up with other rating agencies,” headwinds for spreads from the downgrade are likely to remain limited.

The unrest comes as France’s public debt sits at a record 119% of GDP, Fortune reported. The government lowered its 2026 growth forecast to just 0.5% from 0.7% after GDP expanded 0.9% in 2025. Unemployment tops 8%, with youth joblessness at 20%. Consumer prices rose 3.4% in September from a year earlier, the fastest pace since January 2024.

Mujtaba Rahman, managing director for Europe at Eurasia Group, wrote in a New York Times op-ed that France is suffering from a crisis of liberal democracy, fiscal mismanagement and youth disaffection, calling the fiscal crisis “the most dangerous” and warning that “France, truly, is on the brink,” according to Fortune.

**Euro and dollar dynamics**

The euro’s reaction was more muted than in early October, when the French-German spread widened by about 40 bps within days. Analysts noted the single currency tends to come under sustained pressure only if French political tensions spill beyond national borders and weigh on sentiment across the euro zone, Reuters reported.

“The weekend unrest matters for the euro mainly through French bonds rather than directly,” said Kieran Williams, head of Asia FX at InTouch Capital Markets in London, as reported by Reuters.

Oil prices slipped, with Brent crude futures down 1.7% at $108.02, after U.S. President Donald Trump waived sanctions and tariffs on Russia that may lead to more Russian fuel exports. Higher oil prices have supported the dollar while weighing on energy-importing currencies such as the euro.

Markets see an 84% probability that the Federal Reserve will keep rates unchanged at its Oct. 28 meeting, and the European Central Bank meets on Oct. 29. “Positioning is likely to stay light and headline risk out of France will remain high,” InTouch’s Williams added.