Rich countries face growing demands for a new social contract

Citizens of wealthy countries are demanding a new social contract to address debt, ageing and job insecurity, while G-7 governments face mass protests and growing distrust of institutions.

Social unrest has taken to the streets of the major G-7 economies. France has declared a state of emergency in response to a wave of protests that reveal a deep weariness with the prevailing growth model and growing distrust of institutions. The discontent is not an isolated phenomenon: it is spreading across Spain, Italy, Germany, the United Kingdom and the United States, driven by the cost of living, uncertainty over pensions and job insecurity in the face of the arrival of artificial intelligence.

## France, the epicentre of the institutional crisis

France illustrates the severity of the civil upheaval. The protests, which led **Emmanuel Macron** to declare a state of emergency, reveal a double pressure: citizens' distrust of institutions and the markets' demands in the face of excessive debt. The country is trapped in a vicious circle of reformist paralysis and little room for manoeuvre to impose discipline on public finances that require adjustment. The crisis is structural and shows the exhaustion of a model that offers no prosperous prospects, especially for the young.

The **IMF** has quantified the economic cost of this dynamic. Its *Fiscal Monitor* report estimates that a significant upsurge in social unrest reduces French GDP growth by almost **half a point**, and that the deterioration of primary fiscal balances lowers it by a further **0.2 points**. In its latest assessment of the country, the institution warns that political fragmentation has limited the planned adjustments and could delay the correction of the deficit, which stands at **5.1%**, and of the debt, which reaches **119% of GDP**. This situation could push the risk premium over the German bund even higher, currently at **159 basis points**.

The French streets brought together **half a million** students, teachers and trade unionists on **17 October**, with more than **2,000 arrests**. *The Economist* interprets these episodes as a sign of the exhaustion of political centrism, with governments unable to manage social demands. The French paradox is striking: Macron's loss of power to govern and reform his economy contrasts with his ability to influence Brussels with his ideas on geostrategic autonomy and industrial interventionism.

## The European fracture: from the streets to the ballot box

The discontent goes beyond French borders. In Spain and Italy, the protests express rejection of years of insufficient housing reforms, cuts to education and healthcare, and attempts to cheapen pension commitments. The **Council on Foreign Relations (CFR)** warns that the mobilisations in the second, third and fourth largest economies of the euro area are symptoms of a breakdown of the social contract led by **Gen Z**. From this perspective, the protest "is not merely resistance to change, but a demand for transformations that fail to arrive", the CFR says.

Germany shows a similar blockage. Chancellor **Friedrich Merz** faces criticism from a society unhappy with economic stagnation, and also from the youth wing of his own party, the CDU. Its leader, **Johannes Winkel**, accuses him of presenting minor tweaks as ambitious reforms and demands a deep transformation of pensions. The young conservatives hold **20 seats** in the Bundestag, enough to jeopardise the government's narrow majority. German discontent expresses rejection of economic paralysis, which the far-right **AfD** capitalises on at the ballot box by polarising issues such as labour reform or pensions.

In Italy, the mobilisations coexist with low productivity and the constraints stemming from its high debt. The European rebellion is not uniform, but it shares social demands that are difficult to satisfy with postponed reforms and traditional parties struggling to build consensus. **Charles Grant**, director of the Centre for European Reform (CER), warns that "Europe risks turning its rejection of inertia into a wall that prevents it from breaking out of its rut".

## The cost of political fragility and disaffection

The markets also reflect this fragility. **Ludovic Subran**, of Allianz Research, stresses that there is a high price attached to the current political fragility. In his view, "fragmentation, polarisation and governance difficulties have raised the political threat posed by the excessive sovereign debt of G-7 members". In France, the increase in its fragility indicator has been particularly significant, with its risk premium rising by an additional **38 basis points**. Without reforms, growth loses steam; without social trust, reforms meet resistance; and without political stability, financing becomes more expensive.

The **OECD** is trying to uncover the institutional root of this hostile stance. Its secretary-general, **Mathias Cormann**, notes that citizens retain some confidence in public services but doubt their governments' ability to tackle long-term challenges. According to a recent survey by the multilateral institution, only **31%** of those who admit to having a critical view say they have any influence over official decisions. This perceived loss of representation makes it harder to build consensus for reforms whose costs are immediate but whose benefits take years to materialise.

In the United Kingdom, discontent is feeding disaffection with the traditional parties. A study by **UCL Policy Lab** reveals that **75%** of Britons believe the Government shows little or no respect for citizens. The **Joseph Rowntree Foundation** says that "without new redistributive recipes, the current parliament will see the worst decline in household incomes since **1961**".

## United States: healthcare, inflation and the protest vote

In the United States, social discontent centres on the cost of living and healthcare, a key factor ahead of the midterm elections. An annual survey by **KFF** shows that workers with family health coverage pay an average of **$7,471** a year towards their premiums, **9%** more than in 2025. The total premium, including the employer contribution, reaches **$28,303**, and contrasts with wages that rose by just **3.7%**, in line with September's inflation.

This erosion of purchasing power, intensified by the war in Iran and tariffs, is fuel for the protest vote against Trumpism. According to **Pew Research**, **44%** of voters expect their ballot to serve as a rebuke to **Donald Trump**, with polls giving the Democrats a **90%** chance of winning the House of Representatives and a one-in-three chance of taking the Senate. The **No Kings** mobilisations have brought together millions of citizens opposed to MAGA policies, especially its immigration measures, federal social cuts and the concentration of executive power.

The trend is worrying Wall Street. **Chris Hughes**, co-founder of Facebook, openly criticises tech bosses for becoming obsessed with influencing Washington to serve their regulatory interests. Meanwhile, **Ken Rogoff**, former chief economist of the IMF, warns of the cocktail of inflation, monetary tightening and social unrest that already "threatens the MAGA agenda".

## Japan and the risk of a gap between reforms and sacrifices

Tensions in Japan come more from the markets. Prime Minister **Sanae Takaichi** has rallied her cabinet to reactivate the economy with strategic capital, in an attempt to cushion inflation, strengthen the yen and reduce the world's highest debt-to-GDP ratio. **Keiji Kanda**, of the Daiwa Institute of Research, sees the risk "in the growing distance between the reforms that are advisable and the sacrifices that citizens and markets are willing to accept".

The great challenge, according to the experts, is not designing efficient structural agendas but recovering the legitimacy to implement them. Geopolitical rivalry and rising strategic spending aggravate this scale of tensions. **Marcel Fratzscher**, president of the DIW institute, detects a real risk of political and economic paralysis and, in the case of the four largest euro area members, of a fracture within the EU, both on the budgetary and the strategic front, with the Franco-German axis edging towards sanctions and vetoes on trade with China.

Europe's governance crisis has taken root in the streets and opens up space for forces at the extremes of the political spectrum. It shows that the elites have failed to articulate a roadmap for economic renewal and industrial restructuring. Citizens' discontent ultimately demands a new social contract to address debt, ageing and job insecurity. This article is for information purposes only and does not constitute financial or legal advice.