The perfect storm engulfing France
Key Markets report for Wednesday, 22 October 2025
Europe is in a lot of trouble and France is a major part of it. In terms of nominal GDP, which stands at a respectable $3.21 trillion, France is the second largest economy in Europe and seventh largest in the world. It is also among the top seven contenders for collapse. Her debt-to-GDP ratio is among the world’s highest at 113% with particularly rotten internals.
Namely, France has one of the world’s highest ratios of government spending to GDP: it is about 57% and growing, suggesting that her economic growth depends far more on the public than on the private sector. To avert economic collapse, the government is piling up debt at an accelerating pace and generating ever higher fiscal deficits. So far as we know, they’ve now reached 6%, double the speed limit imposed by the 1992 Maastricht Treaty. And we almost certainly know a lot less than we should.
But even if we pretend that government statistics are accurate, they’re still dismal. France has a massively bloated welfare state but imposing austerity is particularly difficult, especially for the deeply unpopular Macron government(s) that have next to zero political capital. So the bloat must go on with the result that France’s massive debt is only growing more massive even as the cost of servicing that debt is steadily rising:
In all, there’s hardly any good news on the horizon for France. The nature of her crisis is not different from that experienced by most other advanced economies, but France might be racing toward collapse faster than other nations. I am not sure why that is, but an important part of the problem could be related to France’s colonial past.
Loss of Africa
Until very recently France was enjoying a very advantageous economic relationship with her former colonies in Africa, but this provoked a rising anti-French sentiment resulting in a series of military coups and authoritarian governments that have rejected subordination to France and in many cases nationalized the resources French corporations were exploiting to their principal benefit.
The coups played out in Mali, Chad and Guinea in 2021, Burkina Faso in 2022 and Niger in 2023. In a feeble attempt to reverse the disintegration of France’s informal colonialist empire in Africa, President Macron invited the leaders of African nations to Paris in June 2023 to the Summit for a New Global Financial Pact. It was a charm offensive to preserve the colonial status quo, but always under the auspices of the IMF and World Bank. The initiative failed and many African took advantage of the occasion to openly criticize President Macron and reject his charm offensive.
The result is that France’s heavy reliance on colonial extraction has made her that much more vulnerable. Her large investment in Project Ukraine is also failing, making the bad situation significantly worse. The result of this gathering crisis is that France’s standard of living is now deteriorating at an accelerating pace. This is particularly painful for the French people who have grown accustomed to some of the highest living standards in the world. When I moved to Monaco in 1996, I remember reading in some American magazine (perhaps it was Conde Nast) that of all nations in the world, France had the highest score in terms of overall quality of life, and this result was repeated a few years in a row.
Thirty years later, France is a very different place, which is increasingly resembling the third world with a deeply corrupt government and a dysfunctional public administration. Here’s what Cameron Macgregor wrote on the subject some ten months ago:
On two separate trips to Paris in 2022 and 2023, I met with journalists, politicians, and military officers who uniformly described France as a volcano soon to erupt. Anger at Macron’s government is fiery, the immigration crisis is a time bomb, and suspicions of the EU and the Euro project in general are viral.
This is certainly consistent with my own observations living in the south of France. That energy is not obvious, it may be below the surface, but it’s there and it’s gathering, not dissipating and its eruption could be simply a matter of some unpredictable triggering event that could take place at any moment in the future.
Well, everything seems fine otherwise..
This all may seem like abstract news items that don’t really relate to everyday living, which tends to lull people into complacency. Nothing particularly bad happened yesterday, and today seems the same, so whatever all this bad news seems to suggest, life goes on and everything seems fine (this again reminds me of that Coinbase ad I shared yesterday).
But given that the situation is unsustainable and clearly deteriorating, with every passing day during which nothing much happens, we are a day closer to unraveling of the crisis in some fashion. It could only be a matter of some unpredictable triggering event which could happen any day and from which there might be no turning back to the “old normal.” I believe it is entirely possible that after a period of social uprising, France might pass under a military dictatorship. From there we can expect a return to Gaulist principles of national sovereignty including an exit from the EU and from NATO. Of course, this is far from being the only headwind threatening to destroy both organizations.
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Today’s trading signals
With yesterday’s closing prices we have the following changes for the Key Markets portfolio:
