The weak link

France is increasingly becoming a weak link in the euro area.

The chart tells the story: rising borrowing costs, debt approaching 120% of GDP, almost no growth and inflation moving higher again. At the same time, political fragmentation has severely reduced the government’s ability to implement the structural reforms needed to change the trajectory. Bloomberg describes France as the euro area’s “weakest economic link,” with the reform agenda increasingly subordinated to political survival. The IMF has similarly warned that political uncertainty could further delay fiscal consolidation and structural reforms.

And now social tensions are rising again. Student protests have spread across the country, with more than 1,000 schools affected last week and further demonstrations planned. This comes just as markets are demanding a higher risk premium for holding French debt and questioning the credibility of the fiscal trajectory.

France does not lack problems to solve. It increasingly lacks the political capacity to solve them. For Europe’s second-largest economy, that is becoming an economic and financial issue well beyond France itself.