Market report: Concerns about France weigh on the euro

The ongoing mass protests and riots in France are also leaving a clear mark on the financial markets. The demonstrations with around half a million participants resulted in violence and looting in several cities across the country over the weekend.

As a result, French bonds are again under strong pressure after days of relative calm. At 4.9 percent, the yield on ten-year bonds is back at its highest level since 2002.

Concern about France's public finances

The euro is also suffering from concerns about the French budget. This morning the common currency temporarily fell below the $1.12 mark again. Trust in the currency is closely linked to the financial stability of the currency area.

The protests over dilapidated educational institutions and high costs of living not only shed light on the desolate budget situation in France. They also fuel concerns about higher government spending if politicians try to defuse the conflict with concessions. In addition, the damage and production restrictions caused by the escalation of violence also have a direct impact on public finances.

Political resistance to austerity policies

"France today faces a social crisis, an immigration crisis, an energy crisis, an economic crisis and a budget crisis," said Louis-Vincent Gave of the analysis firm Gavekal Research. "All this at a time when the French president is in office but not in power."

The government led by Prime Minister Sébastien Lecornu, which belongs to the same political camp as President Emmanuel Macron, does not have its own majority in the National Assembly. This makes restructuring the budget extremely difficult, especially since the next presidential election is coming up in six months.

Debt ratio well above Maastricht criterion

France's national debt corresponds to almost 120 percent of gross domestic product - that is twice the maximum permitted by the Maastricht Treaty. Germany also meets this criterion, but is in a much better position with a current debt ratio of around 66 percent.

DAX falls significantly behind

The current concerns about France are also weighing on the stock market, alongside those about the sustainability of the AI rally and ongoing inflation. The DAX started the new week weakly and had lost 1.3 percent to 25,290 points by the early afternoon.