Nobel laureate in economics Paul Krugman stated that France is facing a potential debt crisis, and for the European Central Bank, the country may have become "too big to save."
Student protests continue to sweep France; Prime Minister Sebastian Le Pen is striving to pass a controversial 2027 budget that plans fiscal austerity measures worth tens of billions of dollars.
Krugman wrote in his Substack column that France's fiscal path is unsustainable, with the government's debt service burden continuing to rise, and high budget deficits further exacerbating the country's debt pressure.
He raised a key question: against the backdrop of an aging population, France has never been able to reform its relatively low retirement age.
France uses the euro, which makes it easy to deduce that a loss of market confidence could evolve into a severe crisis... We witnessed this scenario between 2009 and 2012, first with Greece, and then with Portugal, Spain, and Italy." Krugman mentioned the European sovereign debt crisis of that time, which also prompted the European Central Bank to introduce a number of intervention measures.
The yield on 10-year French government bonds reached its highest level since 2002.
"At first, investors stopped buying bonds from a certain eurozone country, and the market feared that the government would be forced to default on its debts due to a lack of cash to repay the principal and interest. The panic over default further triggered capital flight, which in turn exacerbated the fears of default and pushed up interest rates, creating a vicious cycle that deepened continuously."
Krugman pointed out that in 2012, ECB President Draghi made a famous commitment to the market that they would do "whatever it takes" to prevent member states from defaulting on their debts. This commitment was widely accepted by the market largely because the southern European countries implemented "massive spending cuts."
As long as France continues to "deviate further from its fiscal responsibilities," rescuing France will be "extremely costly" for the European Central Bank, and it will also trigger significant political controversy.
He wrote, "France may have crossed a threshold, evolving from 'too big to fail' to 'too big to be saved.' In short, it is easy to imagine a scenario where France experiences a severe crisis, and this crisis could cause significant divisions within Europe."
On Friday, Jean-Claude Trichet, the former president of the European Central Bank, was interviewed. He stated that France must reduce the fiscal deficit of this second-largest economy in the EU.
Trichet, who headed the European Central Bank from 2004 to 2011, said: "The ball is now in the hands of the French government and parliament; they have a heavy task to complete."
"Of course, if the situation becomes unstable, we have a large number of policy tools that have been tested in actual combat and have proven effective. I myself have experienced such periods during my tenure," said this former Governor of the French Central Bank in the program "Europe Squawk Box."
Available tools include the European Stability Mechanism ( ESM ); the most extreme tool, however, is the European Central Bank's Transmission Protection Instrument ( TPI ), which was officially implemented in 2022 but has not yet been activated to date. It is used to address the risk of financial fragmentation in the eurozone and to maintain market stability.
On October 8, 2026, at the Bastille Square in Paris, student demonstrators gathered in front of the July Monument to hold a nationwide protest against issues with teaching conditions. Simon Wolfaht/AFP/Getty Images
Trichet stated that if France wished to receive intervention, it would need to proactively seek help from the European Central Bank, but France has currently indicated that it does not require external assistance.
I offer suggestions to all political factions in France. The current political situation is complex, but I call on all parties to take responsibility at this time.
"Regardless of the positions of various factions, it is essential to realize that it is time to prove to the market that France is a responsible market participant."
I call on all parties to be as pragmatic as possible in the negotiations and to achieve results that are credible. And this is precisely one of the conditions for activating the transmission protection tool ( TPI ).
Trichet stated that personal experience during the sovereign debt crisis teaches us that self-rescue is a prerequisite; if one cannot convince market participants, investors, and depositors of the credibility of one's own country's policies, external assistance will not be effective.
There is no doubt that a country must first convince its own people that it is on the right path. I believe that both the Governor of the Bank of France and the French government agree with this.
