Macquarie Warns French Bond Selloff and Street Unrest Could Trigger Bank Deposit Flight

Since student protests over crumbling schools began in September, French borrowing costs have come under heavy pressure, with the gap over German yields touching its widest since the 2011 euro crisis last week. A new Wall Street warning now points at the country's banks.

Macquarie analysts Thierry Wizman and Gareth Berry told clients that "further increases in sovereign bond yields and/or widening riots can cause deposit flight." They have argued across a series of notes that if rioters win more education spending from the government, French bond yields will rise.

Spending to quiet the streets feeds the bond market's worry. Restraint to calm the bond market feeds the streets.

The analysts framed deposit flight as a risk, not as something already happening. Fortune's report notes they said there is currently no sign of it.

The protests

Student-led demonstrations have run for weeks over overcrowded classrooms, missing heating and air conditioning, and changes to university admissions. Bloomberg counted 256,000 demonstrators nationwide on one day last week, 56,000 of them in Paris. It put arrests since Sept. 28 at more than 6,500. Police used tear gas, and 43 officers were injured that day, according to the same count.

Simone Rodan-Benzaquen, senior envoy for Europe at the Foundation for Defense of Democracies, told Fox News Digital that legitimate grievances have been hijacked. "The anger is real, but the violence, I would say, is organized," she said from Paris. She argued that far-left and Islamist groups are exploiting the unrest. That is her assessment, not a finding backed by charges.

Antonio Fatas, an economics professor at Insead, described the political side differently in comments to The Guardian. "Too many political parties are saying let France burn," he said. "They want a crisis, believing it will improve their share of the vote."

Where the money goes

The complaint about dilapidated schools sits next to a budget that is mostly payroll. According to the Education Ministry's 2026 statistical overview, 72% of education expenditure went to salaries, social contributions and pensions for teaching and non-teaching staff. Only 8.5% went to investment, including buildings and equipment. Those figures cover the whole education system, not just high schools.

The national books leave little room. Eurostat put French public debt at 117.6% of GDP in the first quarter of 2026, third-highest in the EU behind Greece and Italy. The Guardian cites a 2025 debt ratio of 115.6% and a deficit of 5.1%. Finance Minister Roland Lescure has promised to cut the deficit after a rise to 5.4% this year. He has yet to say how.

Harvey Feigenbaum, a George Washington University political scientist, told Fox News Digital that France is "in deep debt" and wants to cut expenses while carrying expensive social commitments and slow growth.

Business and the ECB

A survey by Medef, France's largest employer federation, found 82% of firms pessimistic about the next government's economic policy. Two-thirds, 66%, said their business would become vulnerable or even go bankrupt if policy stays deadlocked for five years.

The European Central Bank is being pulled in. The gap between French and German 10-year yields stood at 139 basis points on Oct. 7, more than double its late-May level. Candidates for the May presidential election are pressing the ECB to act. Some want it to buy French debt, and some want debt cancelled.

Jean-Luc Mélenchon, the far-left leader, said that if he wins he would seek treason charges against Bank of France Governor Emmanuel Moulin. Marine Le Pen, who leads in polls, unveiled a plan to cut the deficit while also pressing for cheaper borrowing through ECB action.

Moulin has said the central bank's job is keeping inflation near 2%, not fixing fiscal policy, and that "the conditions are not met today for an intervention from the ECB." The Guardian reports that the ECB's rules say any rescue must come with strict conditions, while France would demand unconditional support.

Ahead

The next test is the budget fight and the presidential campaign. Lescure has not said where the deficit cuts will come from. Macron leaves office next year, and the leading candidates are calling for ECB help while the bank's governor says that is not his job. It is unclear whether the ECB would intervene at all, and on what conditions, if French borrowing costs keep rising.