European riots fuel fears of fresh European debt as French bond yields rise, Goldman Sachs warns
France’s political turmoil and soaring borrowing costs are reviving fears of a wider European debt crisis, with Goldman Sachs warning the eurozone could face a repeat of the turmoil in 2010.
Riots in France are adding to fears of a fresh European economic crisis, as rising borrowing costs and political instability threaten to reignite the turmoil that pushed several countries towards bankruptcy in 2010.
The yield on 10-year French government bonds jumped from 4.80 per cent to 4.89 per cent on Monday, as investors demanded higher returns to hold the country’s debt following two days of looting and unrest.
The market pressure comes ahead of France’s presidential election in April 2027, with rival right-wing and far-left parties vying for power amid deepening political divisions
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“Clearly France has got structural problems and is somewhat ungovernable, they’re trying to get a budget through again, but the deficits and and debts are very high,” said Chris Watling the Chief Market Strategist at Longview Economics.
“On the other hand you have the ECB (European Central Bank) with a mechanism to control these spreads (yields), but it won’t want to be seen to meddle ahead of a (French election) unless there’s more chaos across Europe.”
Investment bank fires warning
Goldman Sachs has joined a chorus of warnings from economists that social unrest threatens Europe’s stability.
On Monday the investment bank said France’s dramatic slide into chaos is raising concerns the “Euro area could face a renewed debt crisis”.
Italy also experienced a sharp rise in borrowing costs after hooded protesters clashed with police in Milan on Sunday.
The investment bank warned most Eurozone economies now have debt levels far higher than in 2010 and must slash spending or hike taxes to offset the risk of an even bigger debt crisis ahead.
In 2010 European countries including Ireland, Greece, and Portugal lost access to affordable funding and were forced to seek emergency bailout funding from the ECB and International Monetary Fund.
In return for the cash injections, the lenders forced governments to slash spending on welfare and public services in a period of ‘austerity’.
France is scheduled to hold presidential elections in April 2027, with Marine Le Pen’s right-wing party among the contenders for power.
Le Pen has vowed to curtail illegal immigration and end the pillaging across the country.
“The bigger picture is that France’s budget and debt problems are not really new, news,” said Mr Watling.
“What is new, news, is that nearly all the major central banks around the world are now tightening [rising interest rates] and we’re seeing it manifest in lots of parts of asset classes. Parts of the equity markets are selling off and yields on AI debt are up a lot.”
The economist added the ECB may eventually buy French or Italian government debt to prevent bond yields from rising above unmanageable levels in a power it has under a mechanism known as the Transmission Protection Instrument (TPI).
“There’s clearly backdoor politics that can go on and the ECB can use the spreads and the TPI to get the deal it wants,” he said.
France’s benchmark share index the CAC 40 closed 1.1 per cent lower on Monday and is down 4.4 per cent for the year.
The Australian dollar also rose 0.8 per cent against the euro to buy €0.622.
It has jumped 12.2 per cent against the European currency over the past year, making the continent cheaper for Australian holiday-makers than it was at the same time last year.
