Student riots engulf France as Le Pen vows to rebuild finances

Massive student riots have escalated across France, with violent clashes leading to arson, serious injuries and thousands of arrests.

Protests erupted in Paris late last month and spread to a nationwide movement, with students blocking schools and taking to the streets to voice their dissatisfaction with teacher shortages, long working hours and dilapidated school buildings.

Hundreds of schools remain closed across the country as gatherings drag on. Education Minister Edouard Jeffrey announced on Monday night that a 15-year-old boy reportedly lost an arm in a clash with riot police in the northern city of Reims, and 190 students were injured in the protests.

France’s Justice Ministry said on Monday that 5,060 people have been arrested since the protests began, 87% of whom are minors.

Mr. Jeffrey said in an interview last week that the movement was “initially legal,” but France’s interior ministry said the riot “no longer has anything to do with a legitimate expression of the demands of high school students.”

Student group Reunion Etudiante said protests would continue Tuesday in various locations across France.

“We stand together and demand resources for our youth,” the union said in a Sept. 29 statement, according to Google Translate. “We call for continued mobilization and participation in all forms, including rallies, blockades, and (future) demonstrations.”

However, the French government has little fiscal space to allocate funds to education. Prime Minister Sébastien Lecornu’s government is about to begin tough budget negotiations against a backdrop of division and economic turmoil.

Finance Minister Laurent Lescure told reporters on Thursday that the 2027 budget targets fiscal adjustments worth 54 billion euros ($60.7 billion). Part of the cuts is planned to be a pay freeze for public sector workers such as teachers.

Past budget impasses led to the collapse of the French government in recent years. Lawmakers have 70 days to consider and amend the budget proposed by Lecorne’s government on Thursday, but previous governments have resorted to emergency legislation to force the budget through after the politically divided parliament failed to reach agreement on fiscal policy.

Political instability related to the decoupling of spending and budget cuts has put pressure on France’s national debt (OAT), which has also been weighed down by a global debt slide and concerns about the country’s finances this year.

french benchmark 10 year yield It rose 129 basis points this year, according to LSEG data. Bond yields and prices move in opposite directions.

The euro is also under pressure, falling to a 17-month low against the US dollar on Monday.

Further political instability is expected when France holds presidential elections in the spring. “If the French people do not choose a political break with the status quo, France will be heading towards a de facto default,” far-right candidate Marine Le Pen, currently predicted to be the frontrunner in opinion polls, said in a speech on Tuesday.

He said that measures such as “abolishing more than 120 ridiculous and unnecessary taxes,” “correcting unfair and ineffective measures in the current pension system,” capping France’s net contribution to the EU budget at €5 billion, and “combatting the aggressive tax optimization strategies of multinational corporations” would bring the overall budget deficit below the 3% threshold within 18 months and equal savings of €140 billion by 2032.

“This radical initiative is a deliberate move to send a clear signal that the fiscal downturn is over and that markets can once again consider France a reliable partner,” he said.

France is subject to the EU’s excessive deficit procedure, which recommends that France eliminate its excess deficit by 2029, but it has a long way to go.

The EU treaty sets standard values ​​for government deficits at 3% of GDP and government debt at 60%. Last year, France’s budget deficit reached 5.1% of GDP, and the debt-to-GDP ratio reached 119% by the end of June.

Eurasia Group founder and president Ian Bremer told CNBC on Monday that Le Pen is “the most popular leader in France right now.”

“What she has promised is that if she becomes president, she will take 120 billion euros out of the budget over her five years in office,” he told “American Market Edition.”

“The only problem is that she refuses to raise taxes, refuses to touch massive social spending that exceeds 50% of France’s spending, and is trying to lower pension levels. So clearly she’s a magician, because there’s no other place for this money to come from… Those two things don’t add up if she wants to win as president and also have a reliable budget.”

Investors trading French government bonds “understand this,” he said. “They’re clearly punishing France, just like they’re punishing the British for saying something completely unbelievable that doesn’t hold up from a market perspective,” Bremer added.

Deutsche Bank analysts led by Jim Reid said in a note Tuesday that “French government bonds clearly outperformed this week, with early signs that pressures on France are stabilizing.”

In choppy trading on Monday, the OAT bond spread, the difference between German and French borrowing costs, widened by 10 basis points in the morning before closing 4.3 basis points narrower.

European government bond yields fell sharply on Tuesday. German 10-year bond yields fell by 5 basis points, while French 10-year bond yields fell by 9 basis points.

Analysts at Deutsche Bank added that bond market activity has “finally provided some respite after last week’s sell-off, which saw the widest spread widening in recent years.”

In recent weeks, the widening of the “spread” that splits the movement of bond yields among euro zone countries has evoked memories of the sovereign debt crisis of the early 2010s and raised questions about whether the European Central Bank will introduce transmission protection measures aimed solely at calming highly disorderly market movements.

In comments reported by Reuters, French Finance Minister Laurent Lescure said on Tuesday that the government “must do everything to avoid falling to that point.” Mr. Lescure also said that OAT’s decline was not caused by a lack of confidence, but by fewer buyers.

Ken Egan, director of sovereign debt at ratings agency KBRA, said the sharp widening in OAT spreads in recent weeks (France’s 10-year bond yield is about 23 basis points above Italy’s) “reflects both concerns about the fiscal trajectory and a growing political uncertainty premium, leaving markets questioning how quickly a credible path to fiscal improvement can be realized.”

—CNBC’s Charlotte Reid contributed to this report.