France's bond market crisis has the potential to negatively impact the US economy, particularly in terms of borrowing costs and public finances.
What happened
France's public debt has risen significantly, from 80% of its economy in 2010 to 120% today, due to years of budget profligacy. The country's budget deficit is projected to increase from 5.4% of GDP to 6.8% by 2030, and its 10-year bond yield has reached 4.9%, the highest level since 2010.
The crisis is exacerbated by France's political dysfunction, with President Emmanuel Macron struggling to cut public spending and reduce the budget deficit. The upcoming presidential election has also led to electoral promises that could further increase public spending.
The European Central Bank has the means to bail France out, but would require a credible commitment to an economic adjustment program, which may be difficult to achieve in the run-up to the election.
The situation in France has implications for the US, which also has unsustainable public finances and a large budget deficit. The US public debt is projected to exceed its level at the end of World War II by 2029, and long-term Treasury bond yields are already at multi-decade highs.
