If the government falls, “there will be a probably quite serious storm and serious turbulence in the financial markets”warned Michel Barnier, the Prime Minister, Tuesday evening on TF1. “We already borrow at very high interest rates, the interest rates that we are obliged to respect to finance our debt with Chinese or American investors. They are currently almost at the level of Greece.”
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Indeed, the yield on ten-year French government bonds stood at 3.05% on Tuesday around 6:20 p.m. in Paris and its German equivalent was at 2.18%. The difference, called “spread”, therefore amounts to 0.87 percentage points, unheard of since 2012. However, this rate difference “constitutes an indicator of choice to measure the confidence placed in France vis-à-vis Germany and its prospects” economical, explains John Plassard, investment specialist for Mirabaud. “In question, the finance bill, rejected in the Assembly, began its examination in public session in the Senate”he continued.
The RN master of the game
For the markets, “the question is whether the National Rally (RN) will abstain in the vote of confidence or not” explains Marine Mazet, rates strategist at Nomura. “The parties of the center and the right will vote for Michel Barnier, the New Popular Front (NFP) against, and the RN finds itself kingmaker”she predicts.
“The French political situation poses a problem” et “with the pressure that the RN puts on the government”a “motion of censure appears to be an increasingly likely outcome for the markets”agrees Aurélien Buffaut, bond manager of Delubac AM.
In this context, knowing “ how many compromises Barnier will make and how much it will cost” is a source of concern for investors, summarizes Marine Mazet. If the government falls at the end of December, “political and fiscal instability will worsen at a time when there will be little liquidity on the markets, which could give rise to exacerbated movements”detailed the strategist.
For her part, Marine Le Pen has ruled out any risk of a shutdown in France, an American situation where federal civil servants are not paid and public services are blocked in the absence of agreement in Congress on a budget. “ Even in the event of censorship, taxes would be lifted, civil servants paid, pensions paid and medical care reimbursed », argued Tuesday in Le Figaro the leader of the RN deputies.
Greater room for maneuver for Germany
Of course, Germany is also facing a political crisis, as Olaf Scholz's coalition exploded in early November. But the country “has, unlike France, significant budgetary room for maneuver, which means that the markets are not frightened”explains Mabrouk Chetouane, head of market strategy at Natixis IM.
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France has a meeting on Friday with the Standard and Poor's rating agency, which must deliver its verdict regarding the country's rating. This rating comes at a time when Paris is still the subject of an excessive deficit procedure with the European Commission. With a clearly slipping public deficit, expected this year at 6.2% of gross domestic product according to Brussels, France displays the worst performance of the Twenty-Seven with the exception of Romania, and remains very far from the 3% ceiling. permitted by EU rules.
(With AFP)
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