France unrest offers Thailand lesson in debt and fiscal discipline

France’s latest wave of unrest is drawing attention to the financial pressure on one of Europe’s largest welfare states, prompting Thai economists to warn that persistent budget deficits and weak fiscal discipline can eventually constrain public services and leave governments with fewer options during a crisis.

More than 500,000 people joined nationwide demonstrations in France after protests that began among secondary-school students over deteriorating school conditions and teacher shortages broadened into anger over living costs and underfunded public services.

Most demonstrations were peaceful, but violence by fringe groups led to looting, fires and attacks on public buildings in several cities. French authorities had made about 2,400 arrests by October 19.

The unrest has intensified debate over whether France can maintain generous pensions, healthcare, education and other public services while its economy grows slowly and government debt continues to rise.

High spending meets weak growth

France recorded a fiscal deficit equivalent to 5.1% of gross domestic product in 2025, while public debt reached 115.6% of GDP.

Government expenditure stood at 57.2% of GDP, one of the highest levels among advanced economies. The Organisation for Economic Co-operation and Development (OECD) expects French economic growth to slow to 0.7% in 2026 and remain weak at 0.8% in 2027.

The combination of high spending, slow growth and persistent deficits means France must borrow heavily while facing increasing demands from an ageing population, defence, healthcare and the climate transition.

Higher borrowing costs have added to the pressure.

French 10-year government bond yields climbed to around 4.9% in October, their highest in more than two decades, as investors questioned the government’s ability to put public finances on a sustainable path.

The OECD has called for significant and sustained fiscal consolidation, primarily through measures to control spending and improve efficiency. It has also noted that France spends heavily on public services while outcomes in areas including health and education continue to lag the strongest-performing OECD countries.

Pension system adds pressure

Pensions are among the most politically sensitive sources of fiscal pressure.

France’s pay-as-you-go retirement system is being strained by an ageing population, longer life expectancy and a weaker ratio between workers paying into the system and retirees receiving benefits.

A French government report published this month showed that pension costs for retired civil servants absorb about 32% of the Education Ministry’s budget and 30% of the Interior Ministry’s budget, reducing the resources available for frontline services.

President Emmanuel Macron’s earlier reform to raise the statutory retirement age from 62 to 64 generated widespread opposition and was subsequently suspended.

Nobel Prize-winning economist Paul Krugman also highlighted France’s retirement system in his October 8 article “What’s the Matter With France?”, arguing that the country faces a difficult adjustment as financial markets become increasingly concerned about its debt trajectory.

The political challenge is compounded by France’s already high tax burden.

The standard value-added tax rate is 20%, the normal corporate income tax rate is 25%, while the highest personal income tax bracket reaches 45%.

That leaves governments facing difficult choices between increasing taxes further, reducing expenditure or allowing debt to continue rising.

Rising debt limits room to calm unrest

Past French governments have sometimes responded to large protests by increasing financial support or adjusting policies to ease pressure on households.

The current fiscal environment gives policymakers less room to do so.

For years, very low interest rates allowed France to increase borrowing without an immediate surge in debt-servicing costs. That environment has changed as global borrowing costs have risen.

The French state is now facing sharply higher interest expenses, meaning more government revenue must be directed towards servicing debt rather than other priorities.

Market pressure has also widened the gap between French and German bond yields, traditionally an important measure of perceived fiscal risk within the eurozone.

European Central Bank President Christine Lagarde said during the IMF–World Bank meetings in Bangkok that the solution to France’s debt problems ultimately had to come from domestic fiscal policy rather than relying on central-bank intervention.

Political divisions complicate reform

France’s fiscal problems come as political divisions deepen ahead of the 2027 presidential election.

Parties on the right and left differ sharply over taxation, immigration, pensions, public investment and social welfare, making agreement on deficit reduction difficult.

Reducing spending risks further public opposition, while raising taxes could weaken household purchasing power and investment.

Uncertainty over the government’s ability to pass credible budgets has itself become a source of concern for investors.

The International Monetary Fund said France can currently manage the rise in borrowing costs but warned that persistently high yields would increase pressure for a credible medium-term fiscal consolidation plan.

Thai economist warns against persistent deficits

Athiphat Muthitacharoen, Professor of Economics at Chulalongkorn University, said France illustrated the risks created when governments repeatedly run large deficits without sufficiently considering their long-term consequences.

He described the problem as short-termism, in which political decisions focus on immediate benefits while longer-term fiscal costs receive less attention.

Athiphat said prolonged deficits eventually affect investor confidence and push government borrowing costs higher.

As interest payments rise, governments have less money available for public services and investment, potentially turning what begins as a fiscal problem into a broader social problem.

For Thailand, he said, the lesson was the importance of maintaining fiscal credibility before financial pressures become difficult to reverse.

Prasarn urges balance in budget priorities

Prasarn Trairatvorakul, a former governor of the Bank of Thailand, said France offered an important lesson in how governments allocate limited resources.

He pointed to the challenge of balancing rising demands in areas such as defence with spending on education and social services.

If some priorities absorb an increasing share of the budget while public infrastructure and essential services do not receive sufficient resources, dissatisfaction can ultimately emerge elsewhere in society, he said.

The broader lesson for Thailand is therefore not simply to restrict spending, but to ensure that budget allocation remains balanced and supports the country’s long-term economic and social needs.

Supavud flags risks to the eurozone

Supavud Saicheua, Chairman of the National Economic and Social Development Council, said France’s high public debt and rising bond yields deserved close attention because of the size of its economy.

He said France faces limited options because taxes are already high, while attempts to reduce public spending face strong political resistance.

Without structural reforms, persistent deficits could continue to undermine confidence in the country’s fiscal position.

Supavud also warned that prolonged market pressure on France could affect other highly indebted eurozone economies, particularly Italy.

France is the eurozone’s second-largest economy after Germany, making any severe deterioration potentially significant for financial conditions across the currency bloc.

Recent market moves have already prompted concern about spillovers, although European officials have said there are currently no signs of a new sovereign-debt crisis.

Thailand urged to preserve fiscal flexibility

For Thailand, the French experience highlights the importance of considering the long-term consequences of recurring deficits and permanent spending commitments.

Fiscal discipline does not necessarily mean cutting social support, but rather ensuring that welfare policies, investment and other government commitments can be financed sustainably.

As Thailand faces its own pressures from population ageing, healthcare costs and demands for public investment, maintaining room in the budget to respond to future crises will become increasingly important.

The warning from France is that once debt, borrowing costs and political resistance to reform rise simultaneously, governments may find themselves with fewer choices precisely when public demands for support are greatest.

Source: Krungthep Turakij