the gap between the borrowing rates of France and Germany at its highest since 2012

The warning signs are multiplying. The gap between the interest rates on the ten-year benchmark loan between France and Germany reached its highest level since 2012 on Tuesday, a sign of growing investor concern over the budget vote and the the future of Michel Barnier's government.

The yield on ten-year French government bonds stood at 3.05% around 5:20 p.m. GMT and its German equivalent was at 2.18%. The gap, 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.

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 at 49.3 upon its return 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 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, know “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.

Germany is certainly also facing a political crisis, as Olaf Scholz's coalition exploded at the beginning of 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. 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.