The government’s decision to take duty for the PLFSS with 49.3 throws markets into the unknown. The French borrowing rate deviates dangerously from the German one.
The risk of censorship by the Barnier government plunges markets into the unknown. Concerned about the turn of events and the government’s forced approval of the Social Security Financing Bill (PLFSS), investors are turning away from french debt en masse. The rate on 10-year French government bonds rose to 2.92% and thier German equivalent, considered a benchmark on a European scale, was at 2.04% in the afternoon. The rate spread (l “diffusion”) rose to 88 basis points (0.87%). France’s risk premium on the markets is now just under 90 basis points, a peak reached last week when the fall of the Barnier government seemed to be approaching.
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Budget, pensions, censorship: the financial markets are in a panic
Warning sign
The excavation of “diffusion” between French and German rates is an alarm signal. It reflects the trust, or rather the distrust, that the main international creditors, in particular Chinese and Americans, have towards our economy. France now borrows at a higher rate than Spain or Portugal,two countries that used to be the weak link in Europe. France’s cost of borrowing is now close to that of Greece, a country that was nearly bankrupt about fifteen years ago. THE “diffusion” The ratio between French and German rates is now close to the level of 2012, when the euro zone was threatened with disintegration due to the near bankruptcy of Greece.
The fall of the government would inevitably cause a new surge in rates. Bad news for France whose debt “now reached 3,228 billion euros” the prime minister recalled in recent days. The rise in rates will in fact end up having repercussions on the annual burden of public debt. Us “it will reach 60 billion euros a year” only to pay the interest on the debt, the Budget Minister, Laurent Saint-Martin, warned last Wednesday. The situation in France also weighs on the euro, which collapsed on Monday. around 5pm the European currency lost 1.00% against the greenback, to 1.0470 dollars, and 0.16% against the British currency, to 82.91 pence per euro.
On the other hand, relative calm reigns on the French stock market. The CAC 40 closed stable at +0.02%, despite political events and, also, the declaration this weekend of the departure of Stellantis CEO Carlos Tavares. For now, “French stocks have already suffered a lot and for the moment the debt market is at the forefront”explains an analyst. The CAC 40 lost nearly 4% in November, after already falling 3% in October. And since the beginning of the year, the flagship index of the Paris Stock Exchange has fallen by 5.25%. Germany also faces meaningful economic and political challenges, but the Frankfurt Stock Exchange’s DAX has gained nearly 15% since the start of the year. French assets, public debt and stocks, have declined since June with the dissolution of the National Assembly. Since then,markets have lived at the pace of political uncertainties.
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what is teh impact of invoking Article 49.3 on France’s borrowing rates compared to Germany?
Interview between Time.news editor and Financial Expert Dr. Claire Dupont
Time.news Editor: Welcome to time.news, dr. Claire Dupont! Today we’re delving into the intriguing financial implications of the French government’s recent decision to invoke Article 49.3 to push through the PLFSS. What can you tell us about this step?
Dr. Claire Dupont: Thank you for having me! Invoking Article 49.3 is a significant political maneuver. It allows the government to pass legislation without a vote in the National Assembly, and in this case, it relates to the Social Security Finance Bill (PLFSS). This decision sends a strong signal to the markets that the government is willing to prioritize its economic agenda, even amidst political instability.
Time.news Editor: Interesting. This kind of move can certainly shake things up. I understand that it has lead to a troubling deviation between French borrowing rates and those of Germany. Can you explain why this is particularly concerning?
dr. Claire Dupont: Absolutely. France and Germany have traditionally had closely aligned borrowing rates due to their strong economic ties and the shared stability of the eurozone. However, when France opts for such unilateral actions, it raises questions about its fiscal discipline and the government’s ability to manage its budget. Investors start to perceive French debt as riskier,leading to higher borrowing costs,which can create a widening gap between French and German rates.
Time.news Editor: So, in effect, this decision could lead to increased costs for the French government in terms of borrowing money?
Dr. Claire Dupont: Exactly. Higher borrowing rates mean that the French government might face steeper costs when issuing bonds. This could lead to a potential vicious cycle where rising debt burdens limit the government’s ability to invest in critical areas like healthcare and infrastructure, ultimately affecting economic growth.
Time.news Editor: How do you think this situation will evolve moving forward? Should we expect increased volatility in the financial markets?
Dr. Claire Dupont: Given the current climate, I would say heightened volatility is probable. Investors will be watching closely for any signs of political dissent, public reaction, and how this might influence future fiscal policies. If confidence in the French government erodes further,we might see a continued divergence in borrowing rates,which can have implications for the Eurozone as a whole.
Time.news Editor: What could the government do to stabilize the situation and reassure investors?
Dr. Claire Dupont: Transparency and dialog are key. The government needs to outline a clear fiscal strategy that demonstrates sound financial management and commitment to reform. Additionally, engaging in dialogue with stakeholders—including opposition parties and civil society—could help to regain public trust and stabilize the markets.
Time.news Editor: if you were advising investors right now, what would you recommend?
Dr. Claire dupont: I would advise caution. Diversifying investments and being vigilant about market fluctuations is crucial.It might also be wise to keep an eye on the broader European economic landscape,as interconnected economies can significantly influence France’s financial stability.
Time.news Editor: Thank you for your insights, Dr. Dupont! This is undoubtedly a developing story, and we appreciate your expertise on the economic ramifications of these political maneuvers.
Dr. Claire Dupont: My pleasure! I look forward to seeing how this evolves.
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Time.news Editor: And thank you to our audience for tuning in.Stay informed with Time.news for more updates on this ongoing situation!