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International Monetary Fund Managing Director Kristalina Georgieva delivered a blunt warning to France on Wednesday, urging its government to bring public finances under control as rising borrowing costs expose mounting concern in the bond market.

France is facing another political crisis as violent student protests enter their third week. Young people across the country have demonstrated against long study days, teacher shortages and deteriorating schools.

The unrest arrives as the French government prepares for budget negotiations and seeks support from a politically fractured parliament. Officials are proposing a fiscal adjustment worth tens of billions of euros through spending cuts.

Political instability has increased pressure on French government bonds, commonly known as OATs. Investors now demand a higher yield on French debt than on bonds issued by the Italian government.

French 10 year bond yields have climbed by more than 100 basis points since the beginning of the year. That sharp increase has intensified attention on whether the government can contain borrowing and establish a credible path toward tighter finances.

“What we see in France is a complication of, on one side, the consequence of borrowing shock after shock after shock, climbing on this staircase that does not lead to heaven, and on the other side, a political dynamic scene in France that creates more difficulties for the finance ministry to put a clear path for tightening,” Georgieva told CNBC’s Lisa Kim.

Georgieva spoke on the sidelines of an event in Singapore. She said there was a “very clear recognition in France that deficit needs to be brought under 5%.”

France is currently subject to the European Union’s excessive deficit procedure. The bloc has recommended that the country move its national deficit closer to the reference value of 3%.

The French deficit reached 5.1% of gross domestic product last year. The government must now pursue major spending reductions while confronting political division and widening public unrest.

Asked whether turmoil in the French bond market resembled the euro zone sovereign debt crisis of the early 2000s, Georgieva argued that Europe has stronger protections today. She also pointed to continued growth in the French economy.

“The French economy is growing,” Georgieva said. “And I think we need to remember that, [compared] to the previous time, we have a much more mature system in Europe. We have the strength of the European Central Bank. We have other instruments that Europe has developed to protect against financial stability risks.”

Those protections did not soften her central warning to the French government. “Yet again, my message is — get your house in order,” she said.

The challenge is becoming more difficult as student protests spread across the country and turn violent. Asked whether the government’s proposed fiscal adjustment would be harder to accomplish under those conditions, Georgieva said, “it’s going to be tough, no question about it.”

She observed that populations have grown accustomed to governments “running to the rescue” of individuals and businesses whenever shocks emerge, particularly since the Covid-19 pandemic. That expectation adds another obstacle for officials seeking public acceptance of spending restraint.

“As difficult as it is, there has to be active communication to explain to people why getting to a better place is actually in their interest, and I think we need more voices to speak about it, not only from government but also from trade unions, from the business community, to bring people together on a mission to improve the prospects for better economic future,” Georgieva said.

Her warning centered on the signals governments send to investors at a time of elevated debt and borrowing costs. Bond markets, she said, are responding to material changes in the financial environment.

“Bond markets respond to fundamentals, and the fundamentals have changed,” Georgieva said. “Inflation is up, interest rates are up, government debt is high. Bond markets are looking for signal that the government borrowing is going to be contained, and we are encouraging governments please send the signal because otherwise we may we may see further climbs up.”

France now faces simultaneous pressure from markets, parliament and protesters. Georgieva’s message was that containing government borrowing and clearly communicating the need for fiscal restraint are essential to reassuring bond markets about French credibility.

DISCLAIMER: GoldInvestors.news is not a registered investment, legal or tax advisor or broker/dealer. All investment/financial opinions expressed by GoldInvestors.news are from the personal research and experience of the owner of the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur.