New curfews in major French cities have helped contain the weeks of social unrest marked by far-left radicals and migrants burning buildings, looting mom-and-pop and luxury stores, and clashing with police. President Emmanuel Macron's failing government still faces another emerging issue: an alarming debt burden and a welfare state on the brink of collapse, addicted to decades of large deficits.
Franklin Templeton's chief investment officer for fixed income, Sonal Desai, warned that deteriorating finances could ignite another euro-area debt crisis, potentially harder to contain than the turmoil surrounding Greece.
"France has more than 10 times the debt that Greece had," Desai said in a webinar earlier today. "A simple bailout is not on the cards."
"I don't think anyone is really ready for a euro-zone debt crisis version 2.0," Desai added. "This one could be significantly worse if it were to come to pass."
She said investors shouldn't underestimate the potential for "significant volatility" in EU government bond markets. She added that Franklin Templeton's bond portfolios are positioned toward shorter-duration assets in Italy and France but have longer-duration investments in Spanish and German debt.
Earlier today, French borrowing costs climbed as investors demanded a larger premium to hold the nation's debt. This suggests mounting concerns over its debt load.
The extra yield investors demand to hold French 10-year bonds over German debt widened to 154 basis points, the highest since early October.
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