10-13-26: France is Falling Apart – Is the EU Next?

by Louis Navellier

October 13, 2026

The global press is all over the big story developing in France, and throughout the European Union (EU). First came a Bloomberg article entitled, “A French Crisis Would Be a Nightmare for the ECB.”  In this article, France’s Finance Minister Roland Lescure was quoted as saying a Le Pen presidency “would raise questions about the place of France in Europe [and] it would probably raise questions about the place of Europe in the world, and I think would destroy value.”  In addition to budget woes and chaos in France, Bloomberg also covered the situation in Germany and Spain as potentially undermining the euro further.

Marine Le Pen remains openly hostile to the EU, especially after an EU court convicted her on what many feel is a bogus (politically motivated) charge. Furthermore, Germany’s Afd Party is even more openly hostile to the EU, so it is very possible that the two largest countries in the EU, Germany and France, will soon be led by anti-EU parties, leading me to conclude that the euro will keep declining.

 The Wall Street Journal also had a great article last week, talking about how France’s appetite for “Magic Money” has turned the nation into a debt bomb. There will be a presidential election in the spring and candidate Marine Le Pen has pledged to drastically cut government spending and cap borrowing. This borrowing cap will be hard to implement, but drastic measures are needed. In the meantime, the bond vigilantes drove yields higher on French government debt above any other country in recent months.

The press parade continues, as MarketWatch had an article entitled: “French bonds are suffering through their worst decade since 1803 – and investors are bracing for more pain.” France’s debt is rising and is now at €3.5 trillion ($3.92 trillion). During the global financial crisis in 2008, the country’s debt-to-GDP ratio was broadly the same as Germany’s and considerably below Italy’s. However, French debt is now far above Germany’s and is closing in on Italy’s high debt-to-GDP ratio. Italian debt has been stable for over a decade, and Italy is perceived to be a much better run country than France. However, the French debt crisis is spilling over into other countries and forcing Italy, Germany and Spain to pay higher rates.

The protests in France started three weeks ago. Initially, these protests were triggered by immigrant children, who do to want to go to school and learn about French history or culture, which resulted in some fires and school closures all over France, with the Paris banlieues (segregated suburbs) being the worst hit.

France has been dysfunctional for a long time, with Marine Le Pen controlling Parliament and French President Emmanuel Macron unable to get Parliament to pass a budget. As a result, France is running a 5.4% budget deficit, the highest of any country in the European Union (EU). As France shrinks in population and fails to assimilate immigrants, its lucrative government pensions are eventually at risk. 

Bloomberg had another great article entitled: “France Turmoil Threatens to Drag ECB Into Bond Market Showdown.” This article talks about the prospect of a government collapse and how the European Central Bank (ECB) may have to step in to buy French bonds or even cancel debt. This threat sent yields soaring in Europe. In other words, France is the first domino that may fall, causing other governments stress, so if the ECB embarks on quantitative easing (money printing) for France, it will likely have to also do it for Italy and other EU countries. As a result, the euro appears to be headed to parity with the U.S. dollar in the New Year and may eventually hit 90 cents versus the U.S. dollar in 2027 if the fiscal crisis persists.

Spain is another EU domino that could collapse soon, as a lack of housing forced Spanish Prime Minister Pedro Sanchez to declare an election on November 29^th. Spain remains open to immigration, but apparently the EU money Spain receives to help settle immigrants is not going into housing. Prime Minister Sanchez has apparently been accepting EU money for housing immigrants, but Spain has not spent it as the EU mandates. In other words, Spain’s open immigration policies appear to be a scheme to fleece the EU.

As major countries within the EU struggle, the euro is now at a 17-month low versus the U.S. dollar. Spain was once one of the EU’s bright spots, due partially to a big population increase from immigrants, but its retail sales dropped 0.9% in July and other economic warning signs have emerged. The biggest drop in July retail sales was a 3.4% plunge in Germany, so it was no surprise the Afd Party won three regional elections and will now control the largest voting bloc in Parliament and oust Chanceller Merz, whose ruling coalition is crumbling, so I expect the euro to remain weak while Europe’s chaos persists.

Interestingly, former ECB Executive Board member Lorenzo Bini Smaghi said the ECB should halt its quantitative tightening to remove a source of financial market uncertainty. Specifically, Smaghi said, “The shadows of the 2011-12 crisis are emerging again,” adding, “One of the clearest signs is the widening of spreads between the government bonds of core and peripheral countries, with France being treated by markets as part of the periphery.” Since leaving the ECB in 2011, Smaghi has served as Chair of French bank Societe Generale until May and now works for Lazard, so I find it interesting that the former Chair of a massive French bank would now be calling France a “periphery” country of the EU.

Britain isn’t doing much better. On Fox Business on October 2^nd, I highlighted the weakness in the British pound. I also pointed out how strong the U.S. dollar has become, especially compared to the pound and euro, which actually lowers prices in the U.S., since a strong dollar lowers the cost of commodities and imported goods. In my opinion, the British pound is leading the European currency collapse due to the fact that the Bank of England did not raise key interest rates like the Fed and the European Central Bank (ECB) did and is now considering measures to improve the gilt (British government debt) repo market resilience and manage the risks. Complicating matters further British Prime Minster Andy Burnham is making overtures for the U.K. to rejoin the European Union (EU), since their budget woes persist.

Similar to the right-wing party strength emerging in France and Germany, there has also been a right-wing shift in Latin America, led by Argentina and Colombia. It appears Brazil may shift back to the right since Flavio Bolsonaro received 47% of the vote compared to President Lula da Silva’s 46% in the first round.

There will be a final run-off between Flavio Bolsonaro and Lula da Silva on October 25^th. In the meantime, Flavio Bolsonaro’s father and former President, Jair Bolsonaro, remains in jail, so if Flavio wins, it is widely assumed he will pardon his father. I should add that Lula da Silva was also in jail before he was re-elected President for the second time, so Brazilian politics clearly play hardball!

The Major Inflation Reports are Coming Tomorrow

The Consumer Price Index (CPI) will be released tomorrow, followed by the Producer Price Index (PPI) on Thursday. Economists are expecting both rates to increase by 0.4% in September, while they expect the core CPI, excluding food & energy, to rise a bit slower, at 0.3% (CPI), and the core PPI may rise only 0.2%. Obviously, if inflation comes in below these advance estimates, Treasury yields could move lower.

Treasury bond auctions are also behaving better. Last Wednesday, the Treasury Department held a $39 billion auction for 10-year bonds, and demand was especially strong. Specifically, the bid to cover ratio was 2.77, up from 2.71 at the previous 10-year bond auction. The more bids bonds receive, the tighter the sale price, so for now it appears Treasury bond yields may be peaking, especially since the Treasury Department is buying back some longer-term Treasury bonds in conjunction with its buyback program.

There is no doubt the U.S. remains an oasis and is the engine behind global GDP growth. It does not hurt that FactSet is estimating the S&P 500’s third-quarter earnings are forecasted to rise by 29.5%, so the upcoming third-quarter announcement season should be very exciting. Naturally, with the normal volume of positive earnings surprises, the S&P 500’s earnings should be up over 33%. This should help fuel my 5% forecasted third-quarter GDP growth rate (as I predicted on Maria Bartiromo’s show last December).

As we approach mid-October, a series of events have converged to propel our fundamentally superior stocks higher, including quarter-end window dressing, seasonal strength, the anticipation of stunning third-quarter announcements, positive analyst earnings revisions, accelerating GDP growth, a strong U.S. dollar and finally confirmation from multiple Fed officials that the FOMC will not hike key interest rates at its October meeting. As investors, we can choose to embrace the positive news and prosper or get caught up in negative propaganda, which could disappear after the midterm elections settle the political situation.

In other economic news last week, the Institute of Supply Management (ISM) reported its service (non-manufacturing) index slipped to 54.9 in September, down from 55.4 in August. Since any reading over 50 signals an expansion, the dip in the ISM service index is nothing to be concerned about. I should add that the ISM service index has been above 50 for 27 consecutive months now. The ISM service components remained strong, including business activity (56.5), new orders (59.8), supplier deliveries (53.2) and inventories (57.8), as 13 of the 17 service industries that ISM surveyed reported expansion in September.

Also, the Commerce Department reported on Tuesday that the trade deficit surged 13.7% in August to $105.6 billion. Imports rose 4.3% to $420.8 billion in August, while exports rose 1.4% to $315.2 billion. Despite strong energy exports, the U.S. continues to import a lot of memory from South Korean and semiconductors from Taiwan due to the data center boom, but the higher the trade deficit rises, the more downward pressure it puts on GDP calculations, so do not be surprised if there is a downward revision.