ECB President Christine Lagarde signals no intervention in France’s fiscal crisis

By John Liu, Kathleen Magramo, CNN

(CNN) — The president of the European Central Bank played down speculation about intervention in France’s ballooning budget crisis on Wednesday.

Asked whether there are plans for the ECB to step in, Christine Lagarde said the solution to the precarious financial state of the European Union’s second-largest economy would be domestic.

“There are particular circumstances that lead to some countries being more affected, France being a case in point,” she told the CNN Global Perspectives event in Bangkok. “For that one, the primary and first solution lies at home in France, and it has to do with fiscal policies.”

France has been embroiled in a rapidly escalating public debt crisis that risks dragging the EU down with it. The financial pressure rapidly snowballed in recent weeks as bond yields spike and unprecedented student protests rock the country.

Public debt has reached nearly 120% of GDP, while the benchmark 10-year bond yields surged to nearly 5% – the highest level in more than two decades – pushing up borrowing costs and slowing economic activity.

All this, coupled with the country’s high social welfare spending, leaves the government little room for maneuver, let alone to address the demands of students, who want solutions to staff shortages and dilapidated school buildings. Investors are also concerned that efforts to reduce the deficit may be hampered, with a presidential election coming next year.

Lagarde, however, also highlighted that rising bond yields are not unique to France. Bond yields in major economies such as the United States, Germany and Japan have all jumped in recent weeks, as a result of a confluence of factors including rising government debt and a prolonged energy shock caused by the Iran war.

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CNN’s Hanna Ziady and John Towfighi contributed to this report.