Paul Krugman Warns France Risks Becoming Too Big to Save Amid Debt Crisis
Nobel laureate Paul Krugman warns that France is facing a severe debt crisis and rising bond yields, potentially becoming too big to bail out for the European Central Bank.
France is facing a growing risk of a debt crisis that could make it "too big to save" for the European Central Bank, Nobel laureate economist Paul Krugman has warned. Amid nationwide protests, political battles over the 2027 budget, and surging government bond yields, the eurozone's second-largest economy is under severe pressure.
Writing on Substack, Krugman noted that France is on an unsustainable economic path, burdened by rising interest payments and persistent budget deficits. He highlighted the country's failure to address its relatively low retirement age against the backdrop of an aging population. Krugman warned that euro membership could turn a loss of investor confidence into a sharp crisis, drawing parallels to the 2009-2012 sovereign debt crisis in Southern Europe.
France's 10-year government bond yield recently climbed to its highest level since 2002. While former ECB President Mario Draghi famously promised to do "whatever it takes" to save the euro during the last crisis, Krugman argued that rescuing France would be exceptionally costly and politically divisive, especially as Paris continues to run large deficits.
Former ECB President Jean-Claude Trichet also urged French politicians to reach a compromise to reduce the deficit and restore market confidence. Speaking to CNBC, Trichet emphasized that the ball is in the court of the French government and parliament, warning that while eurozone tools like the Transmission Protection Instrument exist, France cannot simply rely on outside bailouts without taking decisive fiscal action.