France's fiscal predicament is approaching a critical juncture: with elections looming and political uncertainty mounting, the market's tolerance for the country's fiscal policy is rapidly narrowing.

On Wednesday, October 7, according to Reuters, Angel Ubide, head of fixed income and macroeconomic research at Citadel, stated that France's fiscal policy no longer has much room for error. He believes that France does not currently constitute a systemic risk for Europe, but due to its massive economic size, should systemic problems emerge in France, they could ultimately evolve into a problem for all of Europe. At the same time, current market pressures may also force French politicians to accelerate fiscal consolidation.

On Tuesday, French far-right leader Le Pen proposed a more aggressive fiscal plan, pledging that if elected, she would cut 140 billion euros in spending over her five-year term and plans to enshrine deficit reduction targets in the constitution through a national referendum. However, economists remain skeptical about the feasibility of this plan. Multiple authoritative polls show that Le Pen continues to lead in first-round voting intentions for the French presidential election.

The market has already been the first to reflect concerns about France's fiscal situation: last week, the yield on French 10-year government bonds briefly broke through 5%, hitting a 24-year high; the euro fell below 1.12 against the dollar, touching a 17-month low, while also weakening against the pound, Swiss franc, and Japanese yen. European Central Bank officials and the French Finance Minister have both ruled out the need for direct market intervention at present.

Market Warning: France's Fiscal Policy Has No Room for Error

French government bonds have recently faced sustained selling pressure, with the spread between French and German 10-year government bonds continuing to widen, as investor concerns about the sustainability of France's public finances further push up borrowing costs.

Ubide pointed out that the current bond market pressure itself is a clear signal to French politicians: fiscal policy no longer has much room for error. He believes that while market pressure will exacerbate short-term volatility, it may also prompt French political figures to pay greater attention to fiscal consolidation.

For France, the real challenge lies not only in whether the president can propose a fiscal reform plan, but more importantly in whether the reform can gain parliamentary support. Ubide emphasized that France needs not just a president willing to push for fiscal consolidation, but also a parliamentary election that produces a majority capable of supporting spending cuts.

Without sufficient parliamentary support, even if the president wishes to compress fiscal spending, it would be difficult to translate the plan into actual policy. This means that as the election approaches, the credibility of France's fiscal policy will increasingly depend on whether the future government can establish a stable political support base.

Currently, European Central Bank policymakers still see no need to directly intervene in the French bond market. The French Finance Minister has also ruled out the necessity of central bank market intervention. Under these circumstances, whether the market can regain confidence ultimately still depends on whether France itself can produce a credible fiscal consolidation plan.

Political Turmoil: Le Pen Bets on Large-Scale Spending Cuts

Fiscal pressure coincides with dramatic changes in France's domestic political environment. Student protests, rising prices, and declining household purchasing power continue to affect voter sentiment, squeezing the support rates of mainstream parties while far-right and far-left forces further strengthen.

French far-right leader Le Pen began reinforcing her fiscal policy stance on Tuesday, attempting to prove to voters and financial markets that she has the willingness to control deficits. She pledged that if elected president, she would achieve 140 billion euros in fiscal savings over her five-year term and plans to enshrine deficit reduction targets in the constitution through a national referendum.

However, economists remain doubtful about whether this plan can truly be implemented. The controversy lies not only in whether the 140 billion euro spending cut scale is realistic, but also in whether some early retirement policies for workers previously proposed by Le Pen will continue to be implemented. If welfare commitments and large-scale fiscal cuts exist simultaneously, the actual fiscal maneuvering room remains to be verified.