Energy costs and defense spending rise following the Russia-Ukraine war
Protests over living costs and demands for support spread across Europe
Limited fiscal room adds to the challenge of addressing economic hardship

France has been engulfed by mass protests as citizens take to the streets over conditions in schools and the cost of living. Discontent that began in schools has been joined by anger from labor groups, with arson and looting sweeping major cities. But with national debt reaching 119% of gross domestic product (GDP), the government is struggling even to find the funds to meet protesters’ demands. As protests over economic hardship continue elsewhere in Europe, where energy costs and military spending have risen since the war in Ukraine, governments face the difficult task of cutting spending despite public anger.

Protests at 110 Locations Across France, Arson and Looting in Major Cities

According to Politico Europe and other outlets on the 18th (all dates local), mass protests took place across France the previous day, with demonstrators clashing with police in major cities. Authorities estimated that 550,000 people participated in 110 marches nationwide, while organizers put the figure at 800,000. Participants came from a wide range of backgrounds, including high school and university students, trade union members and members of the “yellow vest” movement. In Paris, crowds marched while waving national flags and singing the national anthem. At Place de la République, some masked participants threw fireworks and paving stones at police, who deployed tear gas and water cannons. Numerous metro stations around the Champs-Élysées, the presidential palace, parliament and government buildings were also closed, disrupting travel through central Paris.

A series of arson attacks and looting by some participants during the protests caused extensive damage to shops and public facilities. Around Place de la République in Paris, paving stones torn up during clashes and shards from shattered shop windows littered the streets. Supermarkets, mobile phone shops, pharmacies and even car dealerships were looted. In the central city of Limoges, a fire at the 19th-century city hall caused its roof to collapse. In Lyon, masked individuals were seen tearing down a tourist information office sign, damaging the premises and then setting them on fire. In the southern port city of Marseille, some protesters stormed the city hall lobby and damaged shops and a police station. Carrefour CEO Alexandre Bompard said 50 of the retailer’s stores had been damaged, including 20 that were looted, with losses totaling tens of millions of euros.

Labor Groups Join Anger That Began in Classrooms

The protests that have shaken the country began with students’ frustration over poor conditions in schools. Demonstrations that started last month at high schools outside Paris brought a wave of demands to address teacher shortages and aging school facilities. A student at Paul Éluard High School in Saint-Denis appealed for better learning conditions, saying the temporary toilets had no running water and rats and cockroaches roamed the school. Students preparing to enter university also voiced strong opposition to the university admissions platform Parcoursup. They argued that opaque selection criteria and assessment processes at individual universities made admission outcomes difficult to predict, while complicated application procedures heightened anxiety. Student groups demanded an end to selection through the platform and an expansion of university places.

Workers and other citizens joined the student protests as rising living costs squeezed household finances. A succession of increases in gasoline, energy and food prices in recent months has added to household burdens, prompting growing calls at rallies for lower prices and measures to protect incomes. The General Confederation of Labour (CGT) also joined, calling for higher wages and pensions and the protection of public services. Students demanding more school staff and better facilities thus rallied alongside labor groups seeking improved living conditions. The movement spread rapidly through social media. A proposal for a rally against soaring fuel prices appeared on TikTok last month, followed by calls encouraging students to participate. According to social media analytics firm Visibrain, 460,000 posts in France had mentioned the rally on the 17th since the 27th of last month.

France’s National Debt Nears EUR 3.6 Trillion

However, the French government’s fiscal room to increase the education and welfare spending demanded by protesters has narrowed considerably. According to France’s national statistics agency INSEE, public debt stood at EUR 3.5955 trillion at the end of June this year, equivalent to 119% of GDP. Debt increased by EUR 59.6 billion in the second quarter alone, raising the debt-to-GDP ratio by 1.5 percentage points from 117.5% in the previous quarter. The Finance Ministry projected that the ratio would rise to 119.3% at the end of this year and 121.7% next year. Additional funding for school repairs and cost-of-living support would inevitably add to an already swollen debt burden.

The mounting fiscal burden reflects a spending structure that exceeds government revenue. According to the International Monetary Fund (IMF), France’s public spending last year amounted to 57.5% of GDP, while its fiscal deficit reached 5.1% of GDP. With borrowing needed even to maintain existing programs and public services, there is little room to expand new support. The IMF previously identified tax revenue shortfalls caused by weak domestic demand and spending overruns in social security and local government as reasons fiscal performance deteriorated more than expected in 2023–2024. Rising pension and healthcare costs associated with population aging, along with higher defense spending, were also cited as factors likely to strain public finances.

Table 1. France’s Fiscal Position and Constraints on Spending Increases

Bond Yields Near 5%, Putting Pressure on France’s Finances

Interest on the growing debt is also eating into the budget. France’s interest payments on public debt will reach EUR 79 billion this year, and the government projects that the cost will rise to EUR 91 billion next year. That means an additional EUR 12 billion in interest payments alone in a single year. Against this backdrop, the yield on France’s 10-year government bonds recently approached 5%, increasing the cost of new borrowing. As bonds issued during the low-interest-rate era mature and are refinanced at higher rates, funding available for education, welfare and other priorities will become increasingly constrained.

Investors buying government bonds are also becoming more cautious. Goldman Sachs economist Alexandre Stott said France’s weak growth, persistent fiscal deficit and political uncertainty ahead of elections were fueling market concerns. According to the IMF, foreign investors held 55% of France’s public debt at the end of last year, leaving the country exposed to shifts in sentiment in international financial markets. In an earlier review of the French economy, the IMF also noted that a lack of political support had prevented further reforms from being adopted. It warned that growing policy uncertainty ahead of next year’s presidential election risked delaying deficit reduction and structural reforms.

Europe Faces Living-Cost Pressures on Top of War Costs

The situation is not very different in other European Union (EU) countries. Protests against high prices, austerity-driven deterioration in public services and soaring housing costs are spreading across Europe. In Italy, demonstrations against low wages, surging prices and worsening conditions in schools took place in major cities including Rome, Milan, Turin and Bologna, leading to clashes with police. The Italian General Confederation of Labour (CGIL), the country’s largest trade union, has announced a general strike for the 20th of next month. In Belgium, where the government cut education budgets under the weight of public debt, high school students have continued protesting, particularly in Brussels and Liège. Portugal, where housing prices jumped 16% year on year in the second quarter, has seen protests over rising housing costs. In Spain, protests over the housing crisis sparked by the forced eviction of an 87-year-old have continued, pushing Prime Minister Pedro Sánchez toward an early general election and deepening political and economic instability across Europe. Complaints about the difficulty of affording education, rent and everyday necessities are erupting simultaneously across European countries.

A major catalyst for Europe’s worsening economic difficulties has been the Russia-Ukraine war. Following Russia’s invasion in 2022, reduced supplies of Russian energy to Europe sent natural gas and electricity prices soaring. The shock spread quickly to households and industry because of the structure of Europe’s electricity market, where rising gas prices push up wholesale electricity prices. Disruptions to exports from Ukraine, a major supplier of grain and vegetable oils, added upward pressure on food prices. Households had to spend more on heating and groceries, while businesses faced higher costs for energy and raw materials.

Cuts to Government Spending Become Unavoidable

Security concerns arising from the war have led to military buildups, further increasing governments’ fiscal burdens. According to the EU Institute for Security Studies, member states’ defense spending rose 74%, from EUR 239.8 billion in 2022 to EUR 417.6 billion last year. The European Defence Agency (EDA) projected that defense spending would reach EUR 454 billion this year, with its share of GDP rising from 2.2% last year to 2.4%. Joint borrowing has also been pursued to fund support for Ukraine. The EU’s EUR 90 billion loan to Ukraine for 2026–2027 is to be financed through EU borrowing, with roughly two-thirds allocated to defense, including the procurement of military equipment. As defense spending expands, growing demand for support for households and businesses struggling with high prices is intensifying pressure over budget allocations. Reflecting weak economic activity, interest costs and rising defense spending, the European Commission projected that the EU’s overall fiscal deficit would widen from 3.1% of GDP last year to 3.6% next year.

With fiscal burdens mounting, governments have little room to postpone austerity further despite opposition from protesters. The longer spending adjustments are delayed, the more borrowing and interest costs accumulate, potentially reducing even the resources available to maintain public services. Speaking in the lower house on the 13th, French Economy Minister Roland Lescure pointed out that money spent on debt interest leaves less available for hospitals, schools and investment in the future. He urged lawmakers to pass a budget that would reduce next year’s fiscal deficit to 5% of GDP. The French government’s position is that the burden of restoring fiscal health cannot be left to only certain segments of society. David Amiel, the minister responsible for public accounts, also explained that particular groups, such as the wealthy, could not shoulder most of the burden required for fiscal adjustment, stressing that there was no more time to delay debt reduction. Despite public demands for higher spending, the government faces the task of cutting expenditure to match its limited resources.