Economists were keeping a close watch on France over the weekend as the government of the key European country was on the brink of collapse over attempts to tackle its high levels of debt.
At the end of last month, French Prime Minister Francois Bayrou unexpectedly announced that he would call a vote of confidence in his government in parliament.
All indications are that he will lose the vote, which is expected on Monday afternoon.
The key issue is that France spends more than it takes in. Its already high public debt recently rose to around 114% of gross domestic product (GDP). This makes France the country with the third-highest debt ratio in the eurozone, behind Greece and Italy.
In absolute terms, France has the largest debt burden in the eurozone, amounting to approximately 3.3 trillion euros ($3.9 trillion). Additionally, France's public spending is among the highest in Europe.
The current government has plans to change that with an austerity budget that includes savings of 43.8 billion euros.
The issue has sparked a political crisis, which, if investors lose confidence, could raise concerns about France's economic stability and raise its borrowing costs.
Bayrou had warned of exactly such a scenario if France failed to change its debt trajectory across party lines and implement an austerity budget. Currently, there is no majority in parliament to support this.
A recent assessment by U.S. investment bank Goldman Sachs called stabilizing its public debt France's greatest economic challenge.
The country must also urgently resume structural reforms to boost growth, it said. Bayrou had called for increased production and planned to achieve this by eliminating two public holidays. But that alienated a majority of the population, further fuelling opposition to his austerity plans.
Interest rates for French government bonds have already increased and are now higher than for Greek ones and almost as high as rates on Italian bonds.
"Investors are concerned about France's high and still rising public debt. Bond yields have already risen significantly more in France than, for example, in Italy, and the yield on 10-year French government bonds is now barely below that of Italy," commented Commerzbank Chief Economist Jorg Kramer.
He also expressed doubts that France, under a new prime minister, will be able to reduce its budget deficit from the current 5.8% to 4.6% of GDP next year, Finance Minister Eric Lombard's goal. Kramer considers this unrealistic due to the lack of a parliamentary majority for reforms.
Despite the looming crisis, European Central Bank (ECB) President Christine Lagarde does not expect France to seek financial assistance from the International Monetary Fund (IMF) to stabilize its finances.
She believes the French banking system is better positioned than during the last financial crisis, but she is closely watching events in her native country.
"Any looming government collapse in a eurozone country is concerning," she said in a recent interview with Radio Classique.
