For most of the time since the euro was introduced, investors believed France could ultimately weather political and economic challenges and remained a relatively safe investment destination. Now, that conviction has begun to waver.

The global bond selloff has hit France with a severity and speed that exceeded expectations. Investors are increasingly worried that France's deficit cannot be reduced to its original target, that policy has fallen into gridlock, and that next year's presidential election could fundamentally alter the country's direction.

France had originally expected to bring its budget deficit down to 5% of GDP this year, but the deficit has instead increased rather than decreased. As the French government begins negotiations over its fiscal plan, talks that could even lead to the government's collapse, signs of crisis are multiplying.

The yield on France's 10-year government bonds has surged by more than 1 percentage point since June, marking the worst quarterly performance since the euro was created. French stock market performance has also lagged other markets, and a Bank of America survey of European fund managers shows France is the least favored market over the next 12 months.

In the budget proposal published by the government on Thursday, unusually aggressive spending cuts were put forward in hopes of reducing the deficit to the target that was missed this year. However, with a fragmented parliament, frequent changes of prime minister, and investors repeatedly rattled, the plan is certain to struggle to pass.

France's longer-term political direction is also full of uncertainty. In May next year, voters disillusioned with Macron's nearly decade of centrist governance will elect a new president. Recent polls show the presidential election could ultimately come down to a second-round runoff between the far-right Le Pen and the far-left candidate Melenchon.

If France cannot control its budget situation, the danger will spread beyond its borders. Cross-border contagion effects could emerge in bond markets, Europe's fiscal rules could be weakened, and the region's ability to coordinate policy and respond to crises could be undermined, even though the region already faces multiple challenges.

The euro has fallen to a 16-month low against the dollar, and hedge funds are increasing their bearish bets on the euro.

Marie Jacot, chief executive of Edmond de Rothschild Asset Management France, said this week that investors are increasingly worried about the risks of French debt. The market has begun to punish France and its elevated debt levels, something that did not really happen in the past.