Sébastien Lecornu resigned as French prime minister on Monday after less than a month in the role, the latest casualty of a clash between stretched public finances and a polarised parliament unable to agree on spending cuts or tax rises. The resignation rattled bond markets, with investors concerned about the country's ability to manage its debt.
France is not alone in facing fiscal pressure. Government bond yields have crept up in many major economies amid worries about tax and spending. In the UK, the memory of Liz Truss's short-lived premiership, brought down by unfunded tax cuts, remains a cautionary tale. The Treasury now pays £110bn a year in interest on debt, and yields have shifted in response to policy moves.
Rachel Reeves has insisted on fiscal rules to maintain bond market confidence, but the UK's stable government contrasts with France's political deadlock. Macron must now choose a new prime minister or face the possibility of resigning himself, while bond markets remain wary.
Globally, many governments are wrestling with higher borrowing costs after central banks raised rates to combat post-pandemic inflation. The OECD noted that interest costs as a share of GDP among member countries jumped from the lowest level in 20 years to the highest between 2021 and 2024. Analysts warn that the US deficit, already at 6% of GDP before recent tax cuts, is an 'accident waiting to happen.'
While each country faces unique political challenges, the broader picture is one of unsustainable debt levels and weary electorates reluctant to accept budget cuts.
