France’s Debt Spiral Raises Fears of a Eurozone Crisis

Economic

Summary:

France’s soaring debt burden, combined with political paralysis and rising borrowing costs, is heightening concerns that the eurozone’s second-largest economy could destabilize the entire currency bloc....

Debt Levels at Critical Highs

France’s national debt has reached €3.35 trillion, equivalent to 113% of GDP, and projections suggest it could climb to 125% by 2030. This places France in the same league as Greece and Italy, the only other EU members to historically exceed such debt-to-GDP levels. The country also faces the highest budget deficit in the EU at 5.4%–5.8% of GDP, far above the bloc’s 3% target.

The debt crisis comes as Prime Minister François Bayrou’s government risks collapse ahead of a September 8 confidence vote. Without a parliamentary majority to pass austerity measures, France may soon face either snap elections or a fragile minority government under President Emmanuel Macron.

Political and Market Pressures

Attempts to rein in spending are deeply unpopular domestically, with both left- and right-wing parties mobilizing against austerity. This political impasse has fueled market anxiety, reflected in higher borrowing costs: France now pays about 3.5% interest on its bonds, compared with Germany’s 2.7%. Rising risk premiums underscore investor unease with France’s fiscal trajectory.

Economists warn that if France Europe’s second-largest economy loses fiscal control, the eurozone itself could face instability. “Yes, we should worry,” said Friedrich Heinemann of Germany’s ZEW research institute. “The eurozone is already fragile, and further French political turmoil could push it into dangerous territory.”

A Fragile Backdrop for Europe

The French crisis comes at a particularly inopportune moment for the EU, which is grappling with trade tensions with the U.S. under President Donald Trump. Paris has proposed higher taxes on American tech giants, intensifying disputes with Washington. A weakened France could undermine Europe’s bargaining power and credibility at a time when geopolitical pressures are mounting.

France’s ballooning debt, political deadlock, and growing investor skepticism pose risks not only to its domestic economy but also to the eurozone’s stability. Unless Paris can implement credible fiscal reforms while maintaining political support, the crisis may evolve into a wider European challenge at precisely the moment the EU can least afford weakness.

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Rising Pressure from U.S. Tariffs

For over a decade, ASEAN countries have ridden the wave of global demand for renewable energy, with solar photovoltaics (PV) leading the surge. From 2013 to 2023, ASEAN’s solar module exports jumped nearly 300%, doubling its global market share to 27%, second only to China. Much of that growth, however, has come from one market: the United States.

Between 2013 and 2023, ASEAN’s solar exports to the U.S. rose nearly 1,000%, and by last year, the U.S. absorbed 62% of ASEAN’s shipments, compared with just 23% a decade earlier. In countries like Malaysia, Thailand, and Cambodia, America now accounts for as much as 80% of export demand.

This reliance has turned into a major liability. Washington’s antidumping and countervailing duty (AD/CVD) probes have already slashed ASEAN imports by 83% in a year for four key producers. Although Indonesia and Laos briefly benefited, with exports to the U.S. soaring 675%, they too are now under investigation.

China’s Grip on Inputs

If reliance on the U.S. for demand is one vulnerability, dependence on China for inputs is another. ASEAN manufacturers rely heavily on Chinese wafers the backbone of solar PV cells. Chinese wafer imports accounted for 66% of ASEAN’s supply in 2023, up from just 8% a decade earlier. In Cambodia, over 99% of wafers come from China.

This dependence is central to U.S. trade complaints. Under U.S. trade law, even partial use of Chinese components (the so-called “wafer + three parts” rule) can trigger duties, effectively labeling ASEAN exports as Chinese-origin. This places ASEAN producers in a precarious position, caught between American trade policy and Chinese supply dominance.

Diversification Imperatives

Experts argue that ASEAN’s solar industry is “playing a dangerous game” by restructuring supply chains merely to dodge tariffs. Instead, two diversification strategies are critical.

First, ASEAN must broaden export markets. While the U.S. takes 62% of exports, India the next largest buyer accounts for just 8%, with Brazil, Mexico, Germany, France, and Spain barely registering. These emerging markets are rapidly scaling up solar deployment, offering a chance to balance ASEAN’s overreliance on Washington.

Second, ASEAN should deepen intra-regional trade. Singapore and Vietnam already rank among the world’s top 10 wafer exporters, while Malaysia and Thailand are major global importers. In fact, 85% of Vietnam’s wafer exports go to Malaysia, showing that regional integration is underway. Building a self-contained, ASEAN-centric supply chain would reduce exposure to U.S. and Chinese policy shocks, while advancing ASEAN’s Carbon Neutrality Strategy.

From Risk to Resilience

The solar industry is one of ASEAN’s flagship “green growth” sectors, yet its future is threatened by overdependence on external players. If diversification stalls, U.S. tariffs and Chinese supply dominance could choke off growth just as ASEAN seeks to lead in renewable energy.

By expanding trade with emerging solar markets, strengthening regional value chains, and investing in upstream capabilities, ASEAN can transform vulnerability into resilience. Otherwise, the region’s much-touted solar boom risks dimming under the shadow of geopolitical and trade uncertainty.

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Conditional Welcome from the Kremlin

Speaking at the Eastern Economic Forum in Vladivostok, Kremlin spokesperson Dmitry Peskov said Russia still welcomes foreign businesses back despite the mass exodus triggered by the Ukraine war and Western sanctions in 2022. “It would be wrong to say we are not interested in their return,” Peskov stated, noting that many companies had left with an option to re-enter the market.

Moscow’s stance is nuanced: firms that left while paying staff and fulfilling tax or social obligations will be treated respectfully, though on terms that safeguard Russian interests. By contrast, companies that abandoned employees without compensation may still be allowed to return, but only after rectifying past damages.

The Key Red Line: Support for Ukraine

The only explicit exclusion applies to firms that directly supported Ukraine’s armed forces. Peskov emphasized that such businesses “have become enemies” and will not be welcomed back. This mirrors Moscow’s broader strategy of distinguishing between politically neutral businesses and those deemed hostile.

Western corporations that pulled out of Russia have already suffered huge write-downs. BP recorded losses of more than $25 billion after giving up its Rosneft stake, while McDonald’s reported a $1.3 billion hit when selling its restaurants to a local franchisee. According to a Reuters analysis, cumulative foreign corporate losses from leaving Russia exceed $107 billion.

Returning would also be expensive. Assets sold or written off would need to be reacquired under less favorable conditions, while companies might face stricter regulatory or financial hurdles designed to ensure Russia extracts maximum value from any comeback.

President Vladimir Putin echoed Peskov’s remarks, stressing that Russia “has never closed its doors” and remains open to cooperation, especially with “friendly” nations. He added that many Western firms are “waiting eagerly” for political restrictions to ease, hinting at a pragmatic future where business ties might resume once geopolitical conditions stabilize.

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Massive Investment Pledges in AI and Energy

The gathering brought together Silicon Valley’s most powerful figures Mark Zuckerberg (Meta), Tim Cook (Apple), Satya Nadella (Microsoft), Sundar Pichai and Sergey Brin (Alphabet), Sam Altman (OpenAI), and Bill Gates. Together, they committed hundreds of billions of dollars to strengthen America’s AI and data infrastructure.

Meta pledged at least $600 billion in U.S. investments by 2028, with Trump spotlighting its $50 billion Louisiana data center as a symbol of America’s AI lead. Apple matched the scale, boosting its U.S. investment plan to $600 billion after adding another $100 billion last month. In a telling exchange, Trump hinted that Apple could gain partial relief from upcoming 100% tariffs on imported chips in return for its domestic commitments.

Trump emphasized that AI was not merely a new industry but a strategic weapon in global competition with China, promising expedited permits and energy supply to power electricity-hungry data centers. The administration’s AI push is being shaped by David Sacks, Trump’s handpicked “AI czar,” who is combining deregulation with a surge in domestic energy production. Complementing these efforts, Japan’s Hitachi Energy announced a $1 billion upgrade to the U.S. power grid.

Big Tech’s Political Bargain with Washington

Beyond AI, Bill Gates focused on vaccines and public health, praising Operation Warp Speed and urging expanded research into diseases like HIV. His remarks stood out, given the confirmation of vaccine-skeptic Robert F. Kennedy Jr. as Health Secretary earlier that day.

Elon Musk was absent but sent a representative, with Trump quipping that Musk was “80% super genius, 20% problematic” and predicting his eventual return to the Republican fold.

For Big Tech, the meeting was also about protection abroad. U.S. tech firms face increasingly strict regulation in Europe, from digital taxes to advertising and content controls. Executives like Zuckerberg have pressed Trump to shield them from EU measures, especially as Brussels weighs penalties against platforms like Musk’s X. Analysts suggest EU regulators may hesitate for fear of provoking Trump, who has threatened retaliatory tariffs and export restrictions.

Strategic Alignment Between Trump and Tech Giants

The meeting illustrated an unusually close alignment between government and industry. Trump needs the financial support and media reach of Big Tech heading into the 2026 elections, while the companies seek a White House willing to confront Brussels and Beijing.

In exchange for investment, they receive promises of tariff relief, regulatory flexibility, and infrastructure support. For Trump, this partnership serves his “America First” agenda by re-industrializing the U.S. and reshaping global supply chains around AI and energy security.

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Belgium’s Reluctance Amid Calls for Tougher Action

Since the EU froze around €200 billion of Russian central bank assets in 2022, following Moscow’s invasion of Ukraine, the bloc has faced increasing pressure particularly from hardline member states to fully seize these funds. The assets are largely held at Euroclear, an international securities depository based in Belgium, giving Brussels a central role in determining their fate.

Belgian Foreign Minister Maxime Prevot stated unequivocally that confiscation is “not an option,” stressing that political decisions without a strong legal or judicial foundation could trigger a “horrific systemic shock across the European financial market.” Such an act, he warned, would gravely damage the euro’s reputation and risk setting off a chain reaction of capital flight.

Risks to European Financial Stability

Prevot’s concern centers on trust. If sovereign assets can be confiscated for political reasons, countries investing billions into European markets might view them as unsafe. “Do you think global investors would not consider pulling out their funds and moving them elsewhere?” he asked, pointing to the dangers of eroding confidence in Europe as a secure investment destination.

Belgium has also pushed back against proposals to invest the frozen funds in higher-risk assets to generate more revenue, warning that such a move could leave Belgium solely liable for potential losses. “We will not accept taking risks for everyone else with nothing more than a pat on the back,” Prevot emphasized.

EU Divisions and Current Approach

While some EU states favor aggressive use of the assets, including outright confiscation, Belgium and Germany remain opposed, making major policy shifts unlikely in the short term. For now, the EU is using only the interest generated from the frozen funds already backing a $50 billion loan package for Ukraine that is being disbursed gradually.

Instead of pursuing riskier strategies, EU policymakers are expected to focus on ensuring that the assets remain frozen until Russia compensates Ukraine for war damages. This cautious stance reflects both legal complexity and fears of financial instability.

Strategic and Diplomatic Implications

The debate comes as the U.S. steps up efforts to broker an end to the war, where the frozen assets could play a pivotal role in any settlement talks. For Brussels, the challenge lies in balancing solidarity with Ukraine against safeguarding the eurozone’s financial system.

Belgium’s stance underscores a fundamental dilemma: using Russian sovereign assets more aggressively may provide short-term financial relief for Ukraine, but at the risk of undermining Europe’s long-term financial credibility and stability.

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A Pragmatic EU Approach

Instead of condemning Prime Minister Narendra Modi’s outreach to Moscow at the SCO summit, Brussels opted for pragmatism. EU leaders Ursula von der Leyen and António Costa quickly emphasized India’s parallel engagement with Ukraine’s Volodymyr Zelensky, framing New Delhi as a potential peace broker. This softer approach contrasts sharply with the EU’s firm stance on China–Russia ties, reflecting Europe’s recognition of India’s long-standing reliance on Russian defense equipment.

The EU sees India as an indispensable partner: the world’s most populous country, one of the fastest-growing economies, and a hub of young, tech-savvy labor. Bilateral trade reached €120 billion last year, with over 6,000 European firms active in India, creating millions of jobs. Cooperation spans from green energy and maritime security to student exchanges, supported by the India–EU Trade and Technology Council, the second such body after the U.S.

During her February trip to New Delhi, von der Leyen declared that EU–India could become “one of the defining partnerships of the century,” and both sides pledged to finalize a free-trade agreement by year-end.

Opportunity from U.S.–India Tensions

While Brussels engages, Washington under Trump has strained ties. A 50% tariff on Indian goods due to oil purchases from Russia, controversial mediation claims over Kashmir, and Trump’s warm reception of Pakistan’s military chief have fueled resentment in India. Analysts note that Modi’s government now views calls with Trump as politically risky.

This volatility gives the EU a diplomatic opening. By contrast, Europe offers India stability, shared values on multipolar cooperation, and an alternative to dependence on U.S. goodwill. For Brussels, India also provides a hedge against China and a way to blunt Trump’s tariffs on EU exports.

Looking Ahead

Scholars like Shairee Malhotra of ORF stress that EU–India ties are increasingly framed in broad geopolitical terms, rather than piecemeal sectoral cooperation. With New Delhi pushing “Make in India” manufacturing and Brussels seeking supply chain diversification, both sides see alignment in long-term strategy.

If Trump’s unpredictable trade and diplomatic moves continue alienating New Delhi, EU–India relations could accelerate further, transforming into a pillar of Europe’s global strategy while reinforcing India’s role as a counterweight to both China and U.S. volatility.

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Carbon Border Tax Rollout in 2026

The European Union confirmed that its carbon border tax, formally known as the Carbon Border Adjustment Mechanism (CBAM), will take effect in early 2026. The tax will target imports in six heavy-emitting sectors cement, steel, aluminum, fertilizers, electricity, and hydrogen in order to align foreign producers with Europe’s own costly emissions trading system (EU ETS).

The goal is to protect European industries that already pay for their carbon emissions, while discouraging carbon leakage the relocation of polluting production to jurisdictions with looser climate rules.

Concerns Over Loopholes and China’s Role

Officials in Brussels worry that exporters, particularly in China, could game the system by diverting their “greenest” output to Europe while continuing to sell high-carbon goods elsewhere. Such a strategy would allow them to avoid paying CBAM duties without meaningfully lowering total emissions.

To counter this, the European Commission (EC) is preparing to propose new enforcement measures by the end of 2025. One key idea under discussion is to assign fixed emission factors at the country or company level, rather than calculating emissions on a shipment-by-shipment basis.

This would make the CBAM more difficult to evade but could penalize foreign firms that genuinely produce lower-carbon products, since they would be taxed at the same average rate as peers in their home country.

Push from European Industry

European industrial groups strongly support tougher safeguards. The European Aluminium Association has urged Brussels to apply a standardized carbon intensity to all aluminum imports from a given country, warning that without such measures the CBAM could become toothless.

While this approach would simplify enforcement and reduce opportunities for fraud, it may trigger resistance from non-EU exporters who want recognition for cleaner production processes.

Future Expansion of CBAM

The Commission is also considering broadening CBAM coverage to downstream products in the six targeted sectors, further tightening the system’s reach. This reflects growing EU determination to ensure climate policy cannot be undermined through trade loopholes.

As one senior EU official put it: “We want to make sure nobody slips through by sending us ‘green’ products while continuing to sell ‘grey’ ones at home.”

The EU’s plan to fix emissions values signals a shift toward practicality in implementing CBAM. However, it raises tensions between ease of enforcement and fairness for cleaner exporters. How Brussels balances these competing pressures will be pivotal in determining whether the CBAM can withstand global trade challenges while maintaining credibility as a climate policy tool.

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