Paris (awp/afp) – The gap between French and German borrowing rates on the markets has returned to its highest level since the dissolution in June, a sign of investors' fears about the budget vote and the future of the government.
The yield on 10-year French government bonds stood at 3.02% around 3:20 p.m. GMT on Tuesday and its German equivalent was at 2.21%.
The difference, called “spread”, amounts to 0.81 percentage points, the same level as at the end of June, in the wake of the surprise dissolution of the National Assembly by French President Emmanuel Macron. On Monday, the “spread” even exceeded this high by reaching 0.83 percentage points.
This rate gap “constitutes an indicator of choice to measure the confidence placed in France vis-à-vis Germany and its economic prospects,” 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.
A formal vote in the Senate is scheduled for December 12.
Then seven deputies and seven senators will try to find a compromise on the budget during a joint committee (CMP). If they succeed, the final version of the text seems promised in 49.3 when it returns to the deputies. And therefore to a motion of censure examined around December 20.
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 added.
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.
In the meantime, France has a meeting on Friday with the Standard and Poor's rating agency, which must deliver its verdict on the country's rating.
This rating comes at a time when France 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.
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