Fears that the government of President Emmanuel Macron of France may collapse for a second time in nine months amid a looming debt crisis stoked alarm in financial markets on Tuesday. Investors hammered the French stock market and pushed up the country’s sovereign borrowing costs to among the highest in the eurozone.
Fanning the concerns was a warning early on Tuesday by the French finance minister, Eric Lombard, that France may need assistance from the International Monetary Fund if the crisis cannot be brought under control. “I cannot assure you that the risk of I.M.F. intervention does not exist,” he said in an interview on French radio.
But he later clarified in a social media post that France was “not under threat of intervention from the IMF, the ECB, or any other international organization,” adding that France was currently financing its debt “without difficulty.”
France, a cornerstone economy in Europe, is rapidly becoming one of its weakest links. As Mr. Macron has been playing the global statesman — sitting next to President Trump to push a European deal for Ukraine or declaring France’s recognition of a Palestinian state — the financial situation back home has been falling apart.
The turmoil mounted after Mr. Macron’s prime minister, Francois Bayrou, issued a surprise call on Monday for a parliamentary vote of confidence on Sept. 8 to address the “gravity” of the problem. France’s debt and deficit have ballooned virtually unchecked to one of the highest levels in Europe.
French opposition parties doubled down on Tuesday on threats to topple the government, vowing to vote against a budget that Mr. Bayrou will present at the Sept. 8 session to slash 44 billion euros from the deficit immediately. Part of the budget involves cutting two national holidays, which has caused nationwide fury.
The fall of France’s current government is highly likely and would weigh heavily on the country’s economy, ING Bank said in a note. The economy is already weak, with growth forecast at just 0.8 percent this year. The political crisis “adds a new layer of uncertainty,” wrote Charlotte de Montpellier, the bank’s senior economist for France.
“In short, France’s political instability is becoming an economic liability,” she added.
Labor unions, which oppose the cuts, met on Tuesday to discuss how to proceed, while calls grew on social media to “close down France” on Sept. 10 by boycotting work, schools and shops.
In a speech Tuesday to the C.F.D.T., France’s biggest labor organization, Mr. Bayrou said lawmakers had “13 days to choose between chaos or responsibility.”
The situation “reminds investors of the vulnerability of France but also of Europe more widely, given the fragile fiscal situations of a number of economies,” Goldman Sachs said in a note. Polymarket, a cryptocurrency betting website, gave 83 percent odds that Mr. Bayrou would be ousted before the end of September.
Shares in French banks tumbled as the political situation clouded the outlook for France’s sovereign debt, which they hold in large quantities. The biggest French banks, including BNP Paribas and Société Générale, as well as the global insurance giant AXA, all slumped more than 5 percent on concerns that global ratings agencies might downgrade France’s debt.
Mr. Lombard, the finance minister, said that without urgent action, the interest rate that France would have to pay investors to buy its sovereign debt would surge within two weeks past that of Italy, another big European country with troubled finances. If that happens, “we will really have fallen to the bottom of the pile in the European Union,” he said.
The country’s outsize debt and deficit are the result of nearly unbridled government spending by Mr. Macron to shield the economy from pandemic lockdowns, as well as from the energy crisis unleashed in Europe after Russia’s invasion of Ukraine.
The deficit was €168.6 billion, or 5.8 percent of gross domestic product in 2024, putting France in worse fiscal straits than Greece, Spain and Italy. The debt exploded in the first quarter of this year to €3.3 trillion, or more than 114 percent of the country’s gross domestic product. Mr. Bayrou has warned that if nothing is done, debt interest will become the government’s largest expense by 2029, ballooning to €100 billion per year.
Investors are spooked because the ouster of Mr. Bayrou would be the third major political upheaval in France after Mr. Macron unexpectedly dissolved Parliament last summer, just before the Olympic Games in Paris, in a bid to prevent Marine Le Pen’s far-right National Rally party from gaining more political power.
That maneuver backfired, leading to a divided Parliament and a new prime minister, Michel Barnier, whose government fell in December after a failed attempt to put France’s finances back on track. Mr. Bayrou was sworn in shortly afterward and made attacking the deficit the central plan of his government.
Liz Alderman is the chief European business correspondent, writing about economic, social and policy developments around Europe.
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