This gap makes it possible to measure investors’ confidence in the country’s ability to honor its debt. This was shaken by political uncertainties in France.
The ten-year French borrowing rate continued to climb early Tuesday afternoon, so much so that the gap with the German rate at the same maturity reached a record since 2020, in the face of political uncertainties in France after the dissolution of The national assembly. Around 12:35 GMT, the French rate stood at 3.28% after having already increased the day before. Its German equivalent, considered the safest in Europe, was at 2.64%.
The gap between this French rate and its German equivalent is an indicator which measures investors’ confidence in the country’s ability to honor its debt. The situation on the markets “illustrates fears of deterioration in the credit quality of France compared to Germany and is linked to the expensive nature of the possible measures from a budgetary point of view” in the event of a victory for the National Rally in France, explains Lionel Melka, manager of Swann Capital. On the bond market, such a gap between French and German borrowing rates for reasons of national policy had no longer been seen “since 2017, when there was a risk of seeing a second round of the presidential elections between Jean-Luc Mélenchon and Marine Le Pen”notes Lionel Melka.
French President Emmanuel Macron responded to the far-right’s historic victory in European elections on Sunday with a surprise dissolution of the National Assembly. However, if the French far-right party obtains good results in the early legislative elections, this will be synonymous with a “increase in budget deficits”, comments Neil Wilson, Finalto analyst. This uncertainty emerges in a context where the country recently saw its credit rating downgraded by one notch by the S&P rating agency. S&P had sanctioned the worsening of the country’s public deficits and did not believe in the promise of a restoration of the accounts by the end of Emmanuel Macron’s mandate in 2027.
