IMF Managing Director Kristalina Georgieva said on Wednesday that the French government must reduce its fiscal deficit to prove its fiscal credibility to the bond market.

France is about to begin budget negotiations, with the government planning fiscal adjustments worth tens of billions of euros.

France is also facing a new political crisis, as nationwide student protests have turned into violent clashes.

In an interview on Wednesday, the IMF chief delivered a blunt message to the French government: get your finances in order. France is mired in yet another political crisis, with violent student protests now in their third week.

Young people across the country have taken to the streets to express dissatisfaction with excessively long class hours, teacher shortages, and dilapidated school buildings. At the same time, the French government needs to win support from a divided parliament and persuade lawmakers to pass a spending-cut plan worth tens of billions of euros.

France's domestic political instability has put downward pressure on its government bonds (OATs). Investors now demand a higher yield on French government bonds than on Italian ones; the yield on France's 10-year government bond has risen by more than 100 basis points since the start of the year.

Speaking to Lisa King on the sidelines of an event in Singapore, Georgieva said: "France's current situation is very complicated. On the one hand, successive shocks have forced the government to keep borrowing, step by step heading down a path with no good outcome; on the other hand, France's current political situation makes it harder for the finance ministry to set out a clear fiscal austerity route."

She noted that "a clear consensus has formed within France that the deficit must be pushed below 5%." France is bound by the EU's Stability and Growth Pact, and the EU recommends that France move its fiscal deficit toward the 3% reference standard. Last year, France's fiscal deficit reached 5.1% of GDP.

Asked whether the current situation in the French bond market resembled the eurozone sovereign debt crisis at the start of this century, Georgieva said Europe's defenses are now stronger. "The French economy is still growing," she said. "Remember, compared with the past, Europe's institutional system is more mature, it has the European Central Bank as a backstop, and other policy tools to guard against financial stability risks have also been established."

But she added: "Even so, my advice remains — get your own finances in order."

Asked whether the French government's proposed fiscal adjustment worth tens of billions of euros would be even harder to carry out against the backdrop of student protests, Georgieva acknowledged: "Without question, the road ahead will be very difficult."

She noted that since the COVID-19 pandemic, the public has become used to the government stepping in to rescue people and businesses during crises. "Despite the heavy resistance to reform, the government must take the initiative to communicate and explain to the public that improving the fiscal situation is in everyone's vital interests. This cannot rely on the government's voice alone; unions and the business community should also take part, build consensus, and work together for a better economic outlook."

She also said: "The bond market looks at economic fundamentals, and the fundamentals have changed. Inflation is higher, interest rates are rising, and government debt is high. The bond market expects to see a clear signal that the government will control the scale of borrowing. We call on governments to send that signal, otherwise bond yields may continue to climb.