Open the Editor’s Digest for free
Roula Khalaf, Editor of the FT, picks her favorite stories in this week’s newsletter.
French bonds and stocks fell on Wednesday as concerns grew among investors that a row over the austerity budget could topple Prime Minister Michel Barnier’s government.
The sale pushed the spread between 10-year French and German yields to 0.9 percent, a level not seen since the Eurozone crisis in 2012. It later returned to 0.86 basis points.
Benchmark Cac 40 stocks were down 0.7 percent, the best performers in major European markets, where they had already fallen more than 1 percent.
Jefferies chief European analyst Mohit Kumar said the sell-off was due to “concerns that the current government will not be able to survive the budget”.
Barnier is looking for it provide a budget and €60bn in spending cuts and tax hikes despite not having a majority in parliament. He has confirmed that he has to use the constitutional instrument to carry the MPs to do this, which will show him not to trust him which will bring down his government along with his budget.
Right-wing leader Marine Le Pen appeared as a key player in the play because his Rassemblement National party is the largest in the constituency and his votes may be needed for the impeachment resolution to take place. After meeting with Barnier on Monday, Le Pen warned that the prime minister would not listen to his demands to protect French citizens from higher taxes and repeated his threat to bring down the government.
In an interview with French journalist TF1 on Tuesday, Barnier he asked the opposition parties to submit the budget, arguing that if it does not pass, there will be “a big storm and a big chaos in the financial markets”.
Given the political uncertainty, a sell-off in French government bonds has pushed the 10-year yield above 3 percent, as investors worry about the stability of Paris’ debt. Yields are now slightly lower than those in Greece, the country at the center of the sovereign debt crisis a decade ago.
France’s budget deficit is about to exceed 6 percent of GDP this year, double the EU target of 3 percent.
Brussels has placed France in a “high deficit” review to force it to reduce the deficit for five years.
Barnier has promised to bring the deficit back to 5 percent of GDP by the end of 2025 – which economists now see as unlikely – and return to within the EU’s borders by 2029.
“It’s hard to be optimistic about the future in France,” said Mark Dowding, chief financial officer at RBC BlueBay Asset Management. “There is a risk that [government bonds] they may see more pressure if the political climate worsens.”
Leave a Reply