Nobel laureate Paul Krugman has expressed serious concerns about France’s fiscal trajectory, suggesting the country might be on a “fiscally unsustainable path” and could now be “too big to save” for the European Central Bank (ECB). His warnings come amid rising student protests and political turmoil as Prime Minister Sébastien Lecornu pushes to pass a contentious 2027 budget that aims for significant fiscal consolidation. Krugman points to France’s mounting government debt, escalating interest costs, and persistent budget deficits, particularly highlighting the failure to reform its relatively low retirement age amid an aging population.

France’s 10-year government bond yields have surged to levels not seen since 2002, reflecting investor jitters about the country’s ability to manage its debt. Krugman highlights a dangerous cycle where investor confidence could erode quickly, potentially triggering a liquidity crisis similar to the European Sovereign Debt Crisis from 2009 to 2012. The ECB’s ability to intervene is complicated by France’s size and current fiscal policies, which appear to move away from responsibility, making any bailout highly costly and politically sensitive.

Former ECB President Jean-Claude Trichet has stepped into the debate, emphasizing the urgent need for French politicians to reach a credible compromise to restore market confidence. He stresses that while the ECB has various tools to stabilize the eurozone, including the European Stability Mechanism and the Transmission Protection Instrument, these measures would require France to first seek assistance and demonstrate fiscal credibility. Trichet calls on all political factions to act responsibly, especially with the upcoming presidential election adding complexity to the situation.

Trichet also warned that France must convincingly commit to correcting its debt problem to unlock ECB support. Drawing from his experience during the last debt crisis, he noted that self-help by the country is essential; market participants will only be persuaded if they believe France is pursuing a sustainable path. The situation remains tense as French authorities grapple with internal dissent and the challenge of maintaining financial stability in Europe’s second-largest economy.