AFollowing the presentation by the government of the finance law for 2025, the CAC40 index barely changed, recording a minimal increase of 0.48% on the day of Friday October 11, the Paris Stock Exchange being closed, like all the others, on weekends. For his part, the famous spreadin other words the difference in the rate at which France and Germany borrow on the markets over a 10-year horizon, has increased slightly, by 1.75%.
Nothing dramatic. It would therefore seem that an official 97-page document concocted by senior officials at Bercy and unveiled by the pair of ministers responsible for the subject, Antoine Armand (Economy and Finance) and Laurent Saint-Martin (Budget and Public Accounts), has not had only a limited impact on the main indicators of market excitement. Does this mean that they are not worried? Alas, no. “If the markets did not move after the announcement of the 2025 budget, it is because investors had already integrated for weeks the significant deviation from the French budgetary trajectory”, analyzes Christopher Dembik, economist and investment advisor at Pictet AM.
ALSO READ Budget 2025: for Macron, the descent into hellIn fact, the relative decline of our country has already been noted by those who lend to it – and who are 54.6% foreigners according to Agence France Trésor – after the dissolution last June. “The shock occurred in the wake of the legislative elections,” continues the expert. THE spread with Germany then gradually increased from 50 to 80 basis points before settling between 70 and 80 basis points. This is not at all satisfactory because, as a reminder, in 2022, we were 25 basis points apart, which is normally the cruising zone.
Those who lend to us no longer believe in the word of France
Worse, continues Christopher Dembik, “since this summer, we have also noticed that Spain and Portugal are borrowing at lower rates than us. The gap is between 5 and 10 basis points for Spain and around 15 basis points for Portugal. However, since their entry into the euro zone, these two states had never borrowed at lower rates than France! “.
ALSO READ Philippe Aghion: “By cutting the research budget, the government is sending a very bad signal” Consequence of France’s budgetary slippage? “Our country went from the second largest signatory in the Eurozone to the fourth in just a few months. And this is likely to last, because investors in public debt now estimate that France’s ten-year prospects are less good than those of Portugal and Spain. It must be said that in 2023 the latter, long considered to be lagging behind economically, managed to generate a surplus while France posted an inglorious deficit of 5.5% of GDP.
Doubt about the sincerity of Bercy’s predictions among foreign investors is now real. There is real skepticism about France’s words.Christopher Dembik, economist at Pictet AM
Basically, what most worries the institutions that lend to our country to enable it to make ends meet is above all the unfortunate tendency of its administration to not keep its word regarding the trajectory of public finances. . “Many foreign investors with whom I spoke recently were shocked by the latest revisions of Bercy’s forecasts,” testifies Christopher Dembik. They do not understand how France was able to predict a deficit target of 4.7% to achieve around 6% in the end. This inconsistency cannot only be justified by a drop in tax revenue. No other comparable country has found itself in such a situation, excluding external shocks. Doubt about the sincerity of Bercy’s predictions among foreign investors is now real. There is real skepticism about France’s words. »
If elected officials do not act, we are heading towards a real austerity cure
This skepticism also applies to our country’s ability to truly achieve the savings it promises. This is not very surprising: for years he has been presenting objectives to his investors and partners that he has never achieved. Friday evening, the Fitch rating agency certainly kept our country’s sovereign rating unchanged, at AA -, but it placed it under negative outlook for this reason.
ALSO READ Why reducing public spending absolutely must involve reducing pension spending “We do not expect the government to meet its revised medium-term deficit forecast to bring the deficit below 3% of GDP by 2029,” read the statement accompanying the decision. And, while the government is committed to reducing the public deficit to 5% of GDP from 2025 and then below 3% in 2029, the Fitch agency does not believe it: it has raised its public deficit forecasts for the France in 2025 and 2026 “at 5.4% of GDP”.
At Pictet AM, Christopher Dembik is on the same line as Fitch analysts. “The budget that has just been presented reassures no one. For three reasons. The first is that the economic measures he proposes risk being unraveled by the National Assembly. The second is that many avenues for reducing spending seem unrealistic: communities will do everything to avoid seeing their budgets reduced; and 12 billion euros of effort is not documented, which is never a good sign. Thirdly, there is great uncertainty over the lifespan of the Barnier government.”
According to this specialist, we should be worried. “At the start of 2025, Agence France Trésor will have to raise a record sum of 300 billion euros. Our lenders may charge even higher rates. Unfortunately, their main scenario is that of a long economic decline in France. The most frightening thing is to see to what extent our elected officials have not understood the problem. If they do nothing, or not enough, France will move towards a real austerity cure.”
