[The Viewpoint of Dongki Kim] Government's Mission, Street Defiance, and the Nation's Fate

France's failed reforms... recurring battles over who bears the cost
Deplorable schools... cost-of-living pressures reach breaking point
Paris in flames... could this spiral into a European crisis?

ECB intervention and temporary fiscal adjust

France is being shaken. Protests against the government's austerity policies and deteriorating public services are spreading in the streets, while bond yields are soaring in financial markets amid concerns over national debt and the budget deficit. Politicians acknowledge the need for reform but remain mired in conflict over who should bear the cost. Protests are obstructing the government's efforts to put public finances on a sound footing, while worsening finances are undermining the quality of public services and fueling further protests in a vicious cycle. This crisis is not simply a domestic French problem. If France, a core member of the eurozone (the 20 countries that use the euro), cannot control its fiscal crisis, the foundations of European monetary integration could be shaken.

The immediate triggers for the latest protests are deteriorating educational conditions and the cost of living. Students' grievances over teacher shortages and aging school facilities helped spark the demonstrations, which grew into large-scale resistance as labor unions and the Yellow Vest movement joined in. But deeper anxieties lie beneath the anger. The promise that education and work will ensure a stable future is faltering, and young people feel that it is difficult to achieve a better life than their parents did. Whenever the government cuts welfare spending or scales back public services, people feel they are being made to bear the cost of the crisis alone. This is why dissatisfaction with policy has expanded into distrust of the political system as a whole.

The problem is that the French government is losing the fiscal capacity to meet these demands. National debt stands at about 119% of gross domestic product (GDP), or 3.6 trillion euros, while the budget deficit exceeds 5% of GDP. France has relied on deficits for an extended period since 1974. In addition, rising interest rates have increased the burden of refinancing previously issued low-interest government bonds at higher rates. On October 22, the yield on French 10-year government bonds rose to as high as 5.14% intraday, and the yield spread with German government bonds widened to more than 150 basis points (1 basis point = 0.01 percentage point). The more the government spends on debt repayment, the less funding remains for education, defense and social policies.

A protester holds a French flag during a demonstration against the rising cost of living in Lyon, France, on the 24th (local time). AP-Yonhap News

That does not mean austerity is easy to impose. President Emmanuel Macron sought to raise the retirement age from 62 to 64 and cut public spending, but faced fierce opposition from labor groups and the public. After the 2024 snap election, the government failed to secure a parliamentary majority and became mired in political deadlock over the budget and structural reforms. Spending cuts risk further deterioration in public services and social resistance, while increased spending would widen the deficit and raise borrowing costs. Tax increases are also difficult. A social consensus is needed on what to cut, what to protect and how to share the burden, but France's political leaders have not shown they are capable of building one.

France's dilemma is even more serious under the euro system. As a eurozone member, France has given up independent monetary policy and the ability to adjust its exchange rate. This is because the European Central Bank (ECB) sets monetary policy based on inflation and financial conditions across the eurozone as a whole. A country with its own currency could consider devaluing it to boost export competitiveness, but France has no such option. Instead, it has to rely on "internal devaluation" by restraining wage and price increases and lowering labor costs. If fiscal austerity, including welfare cuts, is added to the mix, households and workers face an even heavier burden. In a crisis, the benefits of monetary integration can thus become constraints on policy autonomy.

ECB support cannot be a cure-all, either. Measures such as purchasing French government bonds could help prevent a sharp rise in interest rates and slow the spread of anxiety. But unconditional support could create an expectation that Europe will ultimately bail France out even if it fails to maintain fiscal discipline. Member states that prioritize fiscal soundness, such as Germany and the Netherlands, are likely to oppose shouldering France's debt. Conversely, if the ECB refrains from intervening and the French bond market becomes sharply unstable, the value of assets held by banks with government bonds could fall, spreading the shock across financial markets. The ECB faces the difficult task of preventing the financial system from collapsing without undermining fiscal discipline.

A demonstrator holds a French flag during a protest against the rising cost of living in Strasbourg, France, on the 24th (local time). AP-Yonhap News

Leaving the eurozone may appear to offer France a way to reclaim monetary sovereignty. But the cost would be enormous. Disputes could arise over how to convert euro-denominated deposits and debts into a new currency, and who would bear the losses if asset and debt values changed after conversion. If investors tried to move their assets abroad, capital controls could be considered, while a currency depreciation could drive up import prices and inflation. Even discussion of leaving the euro could heighten market anxiety.

Europe's options are also limited. For now, the crisis may be met with "makeshift fixes," combining limited ECB intervention with temporary fiscal adjustments by individual countries. But in the long term, the eurozone needs a fiscal safety net to ensure stability. The large-scale investment priorities in energy, defense and digital technology raised in the "Draghi report" also demonstrate the need for joint financing. Joint bond issuance and fiscal integration could narrow the differences in countries' ability to raise funds, but would be difficult to achieve without the agreement of creditor countries such as Germany to share the burden. Conversely, if countries emphasize only their individual fiscal responsibilities and fail to establish a crisis-response framework, the same conflicts will recur whenever a shock hits.

Ultimately, everything depends on political compromise. France must go beyond simple spending cuts and pursue reforms that boost productivity and the efficiency of public services. At the same time, it must rebuild social consensus so that the burden of reform does not fall disproportionately on particular groups. The EU, too, must do more than demand fiscal discipline from member states: it must discuss a fiscal framework for responding to financial crises. There is still little reason to believe that France's crisis will directly lead to the breakup of the eurozone, but the longer the current deadlock lasts, the higher the cost of getting by with temporary fixes will become. The anger erupting in the streets of France is asking how far Europe is willing to go in showing solidarity. If Europe cannot answer that question, it may get through the immediate crisis only to face even deeper uncertainty.

Lawyer and Writer Kim Dong-gi

This content was produced with the assistance of AI translation services.