With a deficit slipping and borrowing rates becoming higher in France than in certain southern countries previously known to be spendthrifts, concerns about a potential attack on the markets are re-emerging, as during the euro zone crisis.
The rate at which France borrows for ten years, a benchmark for investors, rose above that of Spain on Thursday for the first time in almost 18 years on the market where investors exchange debt already issued .
This shift is a sign that investors consider it safer to hold Spanish debt than French debt. How worried should we be about the finances of the eurozone’s second-largest economy?
What do the numbers say?
They show a slow but constant narrowing for two years in the gap between the rates demanded by investors to hold French debt and those concerning its partners in the South: at a borrowing maturity of five years, French debt is exchange at a higher rate than for Greece, Spain and Portugal.
However, at ten years, the benchmark for international comparisons, the French rate is lower than that of Athens, but higher than those of Lisbon or Madrid.
Traditionally, the debt of the most economically powerful states is granted lower rates.
Where European States borrow directly from investors, that is to say the primary market, the situation is also visible in the latest operations, France for example having borrowed for six months at a rate of 3.12% on September 23 when Greece borrowed at 2.85% for a similar maturity on September 25.
Is this tightening a sign of the brilliant health of the countries of the South or of the declining health of France? “The dominant force is the spectacular improvement in the performance of the countries of the South,” responds AFP Éric Dor, director of economic studies at the IESEG School of Management. “But the deterioration of French public finances and the uncertainty regarding the capacity to restore the accounts do not plead in France’s favor,” he continues.
What are the consequences?
“The budgetary uncertainty in France and the trajectory that will be given when the future budget is adopted is starting to have consequences on the country’s refinancing capacity on the financial markets,” observes Frédéric Rozier, manager, to AFP. portfolios at Mirabaud.
The situation is still under control to the extent that France’s borrowing rates benefit from the reduction in rates by the European Central Bank (ECB) initiated this year. But potential growing tensions due to budgetary difficulties in the country cannot be ruled out.
Especially since budgetary slippages are costly for France: the debt burden is expected to increase from 46 billion euros in 2022 to more than 72 billion in 2027, according to the stability program of the resigning government, one of the main budget items. French, assessed before the public finance situation deteriorated further this year.
All eyes are now on the rating agencies, Fitch on October 11, Moody’s on the 25th, and S&P Global on November 29, which will assess France’s situation and, if they downgrade the French rating, could put a little more pressure on interest rates.
Should we fear a crisis?
At this stage no, in the opinion of most of the experts interviewed, because France remains a solid country, a pillar of the European Union and the euro zone and whose economy is diversified.
The comparison with the debt crisis in the euro zone also stops at the context: the spark at the time was ignited by the revelation of a lie by Greece about the extent of its deficits, on the smoking embers of the financial crisis of 2007-2008.
The countries of the euro zone, France included, are also protected by the ECB which had saved the euro zone and promised to investors that it would do everything to save the single currency.
Its flagship instrument adopted in 2022, the “Transmission protection instrument” can be used to support a State under attack on the financial markets. Provided in theory that the country is not under procedure for excessive deficits, which is no longer the case for France which has been the subject of a procedure in Brussels since July.
