France is facing renewed pressure on its government bonds following a surge in violent protests across the country, raising concerns among economists about the nation’s political stability and fiscal outlook. French bond yields are expected to rise as investors respond to mounting unrest and fears over the country’s ability to implement necessary economic reforms.

The recent wave of violence has led to more than 1,800 arrests, with demonstrators setting cars ablaze, looting shops, and causing significant damage including the near destruction of Limoges city hall. The protests initially began as student demonstrations over educational conditions but have since merged with broader public anger over rising living costs, particularly soaring fuel prices.

Economic instability underpins much of the unrest, as the French government struggles to pass a budget aimed at achieving €54 billion in savings amid a backdrop of significant fiscal challenges. France is currently running a budget deficit exceeding 5 percent of GDP and carries government debt approaching 120 percent of GDP. Bond yields on 10-year French government securities recently reached their highest in 24 years, hovering around 4.8 to 4.9 percent after rising from 3.2 percent in February.

Andrew Kenningham, economist at Capital Economics, noted that these developments highlight the difficulties faced in governing and implementing reforms in France. He warned that bond yields could increase by as much as 0.1 percentage points, potentially pushing borrowing costs to levels unseen in decades. Jonas Goltermann, also from Capital Economics, underscored the broader market unease, saying that France is currently “the whipping boy” and that fiscal uncertainty is unlikely to ease before the presidential election in spring.

The rising market tension also risks spillover effects on other European debt markets, including UK government bonds, which have already been under pressure from geopolitical tensions and domestic fiscal policies.

Political polarization in France is deepening ahead of the presidential vote, with far-right leader Marine Le Pen and left-wing candidate Jean-Luc Mélenchon gaining traction in the polls. Both candidates present challenges for the country’s fiscal health. Le Pen’s Rassemblement National has proposed significant spending cuts, though analysts question the realism of her plans. Mélenchon has advocated for radical measures, including partial debt repudiation, which has unsettled financial markets.

Kenningham cautioned that a government under Le Pen might attempt to pass a budget deemed implausible by investors, possibly triggering a severe bond market sell-off reminiscent of the turmoil seen in the UK under former Prime Minister Liz Truss. Meanwhile, continuing protests and political uncertainty are expected to weigh on French equities, particularly banking stocks, contributing to a 3 percent decline in the CAC 40 index so far this year, underperforming broader European markets.

Overall, analysts anticipate sustained volatility and market strain in France until its upcoming election clarifies the country’s political and fiscal direction.