France and the U.S. share the same debt trap. Why the U.S. has an escape valve.

By Steve Goldstein

French President Emmanuel Macron delivers a televised speech Sunday from the Élysée Palace a day after riots and looting in Paris amid nationwide protests in Paris against the cost of living.

With a debt-to-GDP ratio of about 125%, this politically fractured country with an aging population and mounting cost-of-living pressures faces tough choices in putting its perilous finances back in order that neither its population nor its politicians are willing to tackle.

That country sounds a lot like France. Actually, it's the United States.

Granted, the U.S. didn't just have riots leading to 2,400 arrests. France's leading supermarket chain, Carrefour (FR:CA), said 50 of its stores were looted and ransacked. The town hall in Limoges was burned down.

France has a slightly lower debt-to-GDP ratio than the U.S. The French budget deficit, projected at 5.4% of GDP this year, is lower than the 6.1% projected for the U.S.

France can pay investors about 20 basis points less than the U.S. BX:TMUBMUSD10Y when it borrows over 10 years BX:TMBMKFR-10Y, even with the French 10-year yield rising nearly 10 basis points on Monday. Yields move in the opposite direction to prices.

Student-led protests are not unique - 26 of them have popped up this year, from India to the U.S. "The scale varies, but they appear contagious," said Bilal Hafeez, a former strategist at Deutsche Bank and Nomura who now runs his own research service, Macro Hive. "Common threads that run through the protests are underspending in education and the resultant poor buildings and large class sizes, high tuition and accommodation costs and a loss of hope."

Hafeez referenced the six-stage framework on debt and world order put forward by Ray Dalio, the founder of hedge-fund giant Bridgewater Associates. "Paraphrasing: Stage 4 is spending and debt excess, Stage 5 is unmanageable debt and severe internal political polarization and class warfare and Stage 6 is breakdown and conflict, which includes the collapses of the rules-based system and the return of might is right. For what it's worth, he thinks we're at Stage 6."

For France, in particular, the riots come just ahead of a scheduled review from Moody's, due Friday, which is unlikely to be favorable given the rating agency's current view of Europe's second-largest economy is one notch better than that of S&P or Fitch.

It also comes as the French government tries to push a budget through the fractured parliament. Nico FitzRoy, senior Europe analyst at Signum Global, noted some paradoxical good news: The presidential-election front runner Marine Le Pen, who has proposed cutting the retirement age to 60, will want to project an image of security and stability, and so her party, the far-right National Rally, may be less likely to attempt to collapse the budget process.

France has some problems the U.S. does not. The first is that it has limited capacity to grow itself out of debt trouble - the French economy grew just 0.9% last year and is projected by the International Monetary Fund to grow just 0.5% this year. Last year, the U.S. saw 2.3% growth, which is projected to continue through both 2026 and 2027, according to the IMF.

France's private sector is also heavily indebted. The combined household and nonfinancial corporate debt-to-GDP ratio is some 3 times, compared with about 1.5 for the U.S.

But the biggest difference may be the outsize U.S. role in financial markets.

"The dollar is the reserve currency of the world. More important, the entire global financial system functions on Treasurys," Steve Eisman, an investor chronicled in "The Big Short," said on a weekend podcast in which he discussed the problems confronting France.

"The repo market, which is a multitrillion-dollar market for banks, only uses Treasurys. When large institutions want to park money, they buy Treasurys. Until there is a large, safe and liquid alternative to Treasurys, the U.S. has the luxury of time. But not endless time."

-Steve Goldstein

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10-19-26 0919ET