France has become the new sick man of Europe just in time for its next presidential election.

After two weekends that saw hundreds of thousands of protesters hit the streets demanding the government increase teacher salaries, fix run-down schools and help subsidize the rapidly rising cost of living, the European Union’s second-biggest economy is being dragged into a vicious cycle of twin fiscal and social crises that are fueling each other.

“France is on the brink of a financial crisis,” former Prime Minister Michel Barnier told POLITICO. “We need to send a signal to the markets.”

Authorities were able to prevent the type of rioting and looting this past weekend that marked the first round of demonstrations Oct. 17-18, but financial markets are spooked. Even before the demonstrations began, investors were dumping French debt or demanding historically high returns because of the government’s failure to significantly cut a stubbornly high budget deficit, bring down €3.5 trillion of debt, jumpstart growth and reform an unsustainable pension system.

The prospect of a presidential runoff next spring featuring far-right front-runner Marine Le Pen and her far-left rival Jean-Luc Mélenchon, who is in the mix for second place according to most polls, is further scaring investors. Both candidates want to spend billions to lower the retirement age.

The rioting, for now, is estimated to have cost tens of millions of euros, much of which will be covered by insurance. But the chaos is pouring fuel on an already explosive situation by sending worrying signals to investors, especially if the civil unrest continues. The Yellow Vest protests of 2018 to 2020, which came early in President Emmanuel Macron’s tenure, cost the French economy 0.1% of gross domestic product, with shops reporting losses of €2 billion.

“It is clear that protests have an impact on markets,” Eric Lombard, who served as economy and finance minister last year, told POLITICO.

Given that current Prime Minister Sébastien Lecornu’s proposed budget for 2027 already includes €43 billion in savings, leaving little room for more cuts, the government is faced with an impossible choice: Borrow more money and saddle the next generation with billions of euros in interest payments, or hope the protests die out on their own.

“We have a knife to our throats, and we can feel the drops of blood on our jugular,” said a government minister who was granted anonymity to discuss the current situation.

“We need to show that we’ve heard the outrage. But we have little margin for maneuver given the market situation.”

Playing with fire

Mario Monti, who faced a similar situation as Italian prime minister and managed to avert a financial crisis in 2011 with spending cuts and a pension reform, told POLITICO that “things can go very fast.”

Back then, the spread between Italian and German 10-year bonds — an indicator that measures how risky one country’s debt is compared to historically safe Germany — shot up from around 150 basis points to more than 500 within a few months, Monti recalled. The spread between French and German debt was 169 basis points when markets closed on Friday, while the yield on France’s benchmark 10-year bond hit 5.14% the previous day, the highest level since 2002.

France has long been seen as the EU’s “spoiled child,” Monti said, taking advantage of its political and economic weight to bend or break the bloc’s fiscal rules. But few had thought a country that big and powerful would end up on the front line of a European debt crisis.

While the ability of the European Central Bank to buy government bonds on the secondary market under certain conditions gives it a powerful tool to avert a eurozone crisis, Monti says French voters must recognize that a sovereign debt crisis in their country is no longer the stuff of fiction.

“The major problem is that the public is not concerned enough with this risk,” Monti said. “France is not psychologically ready to view itself as the target of a crisis or even as the starting point of a crisis that could spread.”

That malaise isn’t just economic: Many indicators show France has lost confidence in itself.

According to a poll last month, 9 out of 10 French people are pessimistic about the future and believe their children will be worse off than themselves. A pan-European study conducted earlier this year found that only half of French respondents feel pride in the democratic system, compared to two-thirds of Germans and close to 70 percent of Britons.

That pessimism has pushed voters toward more extreme candidates like Le Pen — whose economic platform has been panned by some economists as unrealistic and unserious — and Mélenchon, who wants to set French debt “on fire.” According to POLITICO’s Poll of Polls from earlier this month, Le Pen enjoys the support of 34% of voters while Mélenchon has 15% — meaning nearly 50% of the electorate intends to vote for an anti-establishment figure. Center-right candidate Edouard Philippe, arguably the best-placed mainstream figure to take on Le Pen, has tried to sell himself to voters as a candidate of fiscal discipline who is unafraid to address tough truths. But his campaign has struggled to find its footing.

Doom loop

The officials, lawmakers and diplomats POLITICO spoke with all agreed that France was not at risk of a Greece-like scenario forcing the government to stop paying officials and creditors. But it could very well experience a crisis similar to the one in Italy when Monti replaced Silvio Berlusconi in 2011.

“We are not yet a banana republic which risks filing for bankruptcy,” said veteran centrist lawmaker and budget expert Charles de Courson.

But during rioting earlier this month, in front of the shattered window of an already ransacked supermarket in Paris’ hipster 11th arrondissement, a man with no apparent connection to the shop was encouraging passers-by to go in and steal what they needed. A few meters away, the owner of a Chinese restaurant locked the door behind each client to make sure the rioters couldn’t get in.

These are scenes one would expect in a country on the verge of a sovereign debt crisis, not a member of the G7. Watching from Brussels, Washington or New York, diplomats and economists recognize that Paris will likely fail to bring its budget deficit down to 3% of GDP by 2029 as it previously promised to the EU.

De Courson said France has “lost all credibility” with its European partners when it comes to fiscal issues. Lombard, the former economy minister, said “we failed to honor our commitments,” but held out hope that things could change.

“On behalf of the French people, we made commitments to get the finances back on track, but we didn’t keep them. I was very much in favor of honoring my commitments. But collectively, we didn’t do that,” Lombard said. “So we put ourselves in a position of weakness.”

PARIS — French President Emmanuel Macron has instructed local authorities to ban protests on Saturday except those organized by unions, he said Thursday.

Any request to “protest” or “regroup” made by people “who have no legitimacy to do so” will be “refused,” Macron said after a security meeting with Prime Minister Sébastien Lecornu and intelligence services.

The aim, he added, is to maintain public order and “protect businesses” after last week’s turmoil in France.

Hundreds of thousands of demonstrators took to the streets, while incidents of vandalism and looting affected thousands of businesses and public buildings on the sidelines of the protests.

Calls for a fresh round of protests have already begun to emerge online, raising the possibility of a protest movement that becomes a weekly occurrence, as was the case during the 2018-2019 Yellow Vest movement.

“The president believes that six months before a presidential election, debate should take place more in TV studios, in newspapers, and ultimately by the choice at the ballot box,” a person close to the French president said.

Trade unions usually hold talks with local authorities ahead of planned demonstrations. For Saturday, authorities may offer “alternative routes” to ensure maximum security, Macron announced.

He added that he will chair a defense council Friday and announce “new decisions” afterward.

Interior Minister Laurent Nuñez said elite tactical police units and a military unit normally deployed on French soil for counterterrorism operations would also be mobilized this weekend.

The government has been accused of mismanaging last week’s protests by significantly underestimating the number of demonstrators and consequently failing to deploy enough police to prevent criminal acts on the sidelines.

A protest organized by a major trade union Saturday in Paris has been approved, French media reported, while all protests in the area including Lyon, one of the country’s biggest cities, have been banned.

PARIS — French President Emmanuel Macron will leave the Élysée Palace in about seven months, and the cost of his departure is already being budgeted.

France’s draft budget for next year, currently under discussion in parliament, includes a €2.3 million provision to help Macron move into furnished offices, according to a parliamentary report first obtained by POLITICO. The sum also covers rent, service charges and security for the next six years.

Former French presidents receive a range of lifelong benefits, including a pension, offices, a chauffeur and police protection. For the first five years after leaving office, they can also employ up to seven staff members, a number that drops to three thereafter.

Despite the budget allocation, Macron does not yet appear to have found his next place of work. The Elysée told POLITICO the provision was a “precautionary measure … based on the experiences of previous presidents.”

Nicolas Sarkozy and François Hollande are the only two living former presidents currently benefiting from the arrangements — even though Hollande has since returned to parliament as a lawmaker.

Hollande said last month that he is receiving a monthly pension of €5,000 for his time at the Élysée, on top of pensions from previous roles and his current income.

Macron, the youngest president in modern French history, will be 49 when he leaves office and has pledged not to draw his presidential pension.

He has kept his plans for life after the presidency close to his chest, leaving unclear to what extent he intends to remain involved in politics. Although he is constitutionally barred from seeking a third consecutive term, he will be eligible to run for president again once his successor takes office. He has not ruled out the possibility of doing so.