After the vote of distrust, Nicolas Bayrou recently arrived at the Elysée, the headquarters of the French presidency, to resign the president Emmanuel Macron, concluding an assignment that lasted just nine months. For the first time in the history of the fifth republic, the crisis was caused by a vote of trust (364 votes against and 194 votes in favor) and opens very complicated scenarios for France.
President Macron has three possible alternatives, all equally risky. The first is to choose a new premier, which at the moment seems the most accredited hypothesis, to approve the budgetary budget law and avoid a “attack” of the markets and a rating cut. The new Prime Minister should remain in office at least until the next presidential elections in 2027, but the company is certainly not easy considering that the opposition forces press for new elections and the majority is extremely fragmented and varied. The socialists have already made it clear that they will have to like the new candidacy, but the other political forces that make up the coalition have already specified that they would never vote for a socialist candidate, so you enter a difficult impasse to dissolve.
The other two alternatives are also more dramatic: one involves the resignation of Macron, currently somewhat unlikely, despite the pressing of the Rassenn National by Marine Le Pen, the other the dissolution of the national assembly and new elections, whose times, however, are incompatible with the calendar of the budget law and would be welcomed with great pessimism from the markets and rating agencies.
According to Unicredit analysts, so far, the markets have reacted to the political crisis in France, as “investors expect an orderly management of the political crisis in France, with the absence of extreme scenarios as short -term early elections”.
An opinion shared by Raphael Thuin, Head of Capital Markets Strategies of Tikehau Capital, according to which, “although not expected, in the short term, any sudden shock, the accumulating of uncertainties could, in the medium term, weigh on the growth and credibility of the country. The possibility of leaving this impasse will depend so much on the internal choices – in particular on the ability to form a stable government – the patience of the investors. of negative dynamics that erode national credibility “.
The OAT flies and the spread widens
Despite the quiet reaction of the equity market, with the CAC-40 which confirms a progress of 0.39%, the main consequences of the political crisis in France are seen on the bond market, which confirms the tendency to an increase in the performance of the government bonds (OAT) and an enlargement of the spread, which seems to also prelude to the now expected worsening of the rating.
The performance of the 10 -year OAAT has gone up to 3.48% (+7 basic points compared to the eve), bringing the spread compared to the German bund at 80.7 points, bringing that of local BTP approaching that makes 3.52% and highlights the differential iìun compared to the 85 -point dìtedesco benchmark.
The racing nightmare
The political stalemate situation came to create in France will not be able to have consequences on the French rating, Porto that some agencies already have a negative outlook on the French rating and that bursts rats, after the vito di distrust, has already put it in negative creditwatch.
“The collapse of the French government-the second in less than a year-is negative for the credit of France (AA-/Stabile)”
Annates Thomas Gillet, Sovereign and Public Rating Rating Director, noting that distrust
“He aggravates the country’s political instability and the relative credit difficulties, given the high budget deficit (5.8% of GDP in 2024) and the growing debt trajectory”.
For the European rating agency,
“The debt/GDP ratio is destined to continue to rise up to 120% in the coming years, compared to 113% of GDP in 2024, 15 percentage points more than in 2019”.
For Scope, which will express itself on the rating formally on September 26th
“A fragmented political panorama, a greater political polarization and an electoral calendar hinder a political compromise on budget reforms, which increase the risk of political stall and weakening public finances in the medium term”.
As for the other agencies, the first to express himself this Friday will be Fitch, who had assigned an AA- with Oulook negative to France. DBRS Morningstar (September 19) and Moody’s (24 October) will follow.
Is there a risk of contagion in Europe?
For analysts, Nuveen there is no risk of contagion in Europe and, above all, Italy is better positioned in the process of correction of the deficit. For Laura Cooper, Nuveen’s Head of Macro Credit and Global Investment Strategist, “The French Oats are showing signs of tension” and “a short-term narrowing (of the spread) at 70 pb is probable with a coalition government. However, a spread around 90-100 pb-if the fears of a reckless tax policy should intensify-could be a temptation for those who are in search of those who are looking for those occasions “.
“Italy seems better positioned, for the dynamics relating to current games and the path on relatively more rigorous deficit, – explains the analyst – while Spain remains a favorite story since its economy is moving towards the high end of the value chain”.
