France in crisis political deadlock rattles bond markets and exposes global risks

France is rapidly becoming the epicentre of financial turbulence amid mounting concerns over public debt and political paralysis. The abrupt resignation of French Prime Minister Sébastien Lecornu, after barely a month in office, highlighted the government’s struggle to reconcile stretched public finances with a fractured parliament unable to muster support for spending cuts or tax rises.

President Emmanuel Macron now faces a stark choice. Appoint a new premier to attempt the delicate arithmetic of passing tough fiscal measures through a divided National Assembly or consider his own resignation as pressure mounts from international investors. The latest bout of political chaos has sent shockwaves through the bond markets, keeping France’s problems in sharp focus.

Government bond yields—effectively the interest rate on sovereign borrowing—have been climbing across major economies. Concerns centre on rising fiscal pressures at a time when voters appear exhausted by years of economic hardship and are resistant to further austerity. In Japan, expectations that likely new prime minister Sanae Takaichi will increase government spending has unsettled markets, especially given Tokyo’s towering debt, now about 250 percent of GDP. In the United Kingdom, Labour’s Rachel Reeves continues to stress strict fiscal rules to maintain credibility with markets, haunted by the brief and turbulent tenure of Liz Truss who suffered a swift market backlash to her unfunded plans.

United States treasury markets have so far proved more resilient, despite President Trump’s recent tax cuts projected to add two trillion dollars to public debt. Long-term yields spiked in May but have eased amid hopes of Federal Reserve rate cuts. Yet many analysts warn that chronic US deficits are storing up trouble and could, before long, ignite a similar crisis of confidence.

Governments globally now face a legacy of massive borrowing to buffer the 2008 financial crisis and the Covid-19 pandemic. Debt loads that seemed sustainable during the era of ultralow interest rates are now a major liability. Central banks have raised rates to contain inflation after the post-pandemic reopening and the shock from Russia’s invasion of Ukraine. Higher borrowing costs collide with ageing populations, net zero commitments, and heightened defence needs, stretching budgets to breaking point.

The Organisation for Economic Co-operation and Development (OECD) notes that interest payments as a share of GDP across developed economies have surged to their highest in two decades. In 2024 alone, governments and companies borrowed a staggering twenty-five trillion dollars globally—almost three times the figure of 2007. Many countries are fishing in a shrinking pool of international capital, so anxieties in one market can quickly infect another.

France’s predicament—a potent mix of political discord and unsustainable debt—serves as a warning. Even seemingly minor shifts in investor sentiment can provoke market turmoil and force deep political changes. With global debt at record highs, the risks of a wider bond market meltdown are higher than they have been in a generation.