The parallel crisis that has invested France and the United Kingdom recalls sad memories, when Italy also ended up in the sights of speculation, due to the debt too high and the excessive increase in the performance of the government bonds, which represent the cost of refinancing the same. Today, Paris and Londa are finished in the sights of speculation, but you already ask yourself if you risk a contagion effect in the rest of the EU.
The crisis in the United Kingdom and the pound
The pound continues to lose ground against the dollar, going down by 1.27% on new minimums of 1,3371 USD, while the euro pound cross stood at 1,1486 (0.69%). To penalize the British currency contributes the surge in Gilt returns, the British government bonds, which have gone on multi -year greatest.
The performance of the thirty -year GILT, in particular, has reached the maximum of the last twenty -seven years at 5.69%, climbing the levels of May 1998. It is the effect of the panic selling that has invested the government securities of the United Kingdom and the greater prize for the risk incorporated by British securities, due to the government’s difficulties to manage public finances.
By next autumn, the Keir Starmer government will have to make difficult choices, probably announcing an increase in taxes or reviewing some items of spending. A not easy commitment for the Minister of Finance Rachel Reeves, whose position is still considered in the balance, especially after the British Prime Minister has strengthened the economic team of Downing Street, letting the crucial decision to himself intuit.
France look worried about the vote
If the government of the United Kingdom is at risk of reshuffle, the French one that belongs to Prime Minister Francois Bayrou seems to have now reached the terminus. The vote of trust of 8 September by the French Parliament is expected in this hot climate, while Prime Minister Bayrou is carrying out the talks with different political parties, to understand if a majority will be able to appear.
The Bayrou government is also struggling with too high a debt and an out of control deficit and is preparing to develop tears and blood measures, not least the reform of the pension system, which weighs excessively on the state coffers.
“The vote will be decisive: in case of rejection, Bayrou has announced the resignation and repercussions on the markets could be immediate, with a possible increase in volatility and strategic positioning opportunities for investors”
He underlines John Taylor, Head of European Fixed Income of Alliancebernstein, according to which
“The most probable scenario is a rejection of the Bayrou government, which would bring President Macron in front of three main options: appointing a new government in charge of approving the budget, calling new early parliamentary elections or, alternatively, resigning. This street, extreme and unlikely, would represent the worst scenario for French assets”.
This difficult situation is also reflected on the French government bonds, with the thirty -year performance which reached 4.50%, to the maximums from the 2011 debt crisis, while the yield of the tenth anniversary was settled with 3.58%.
Risk risk?
At this point we ask ourselves if there is the possibility of contagion in the rest of the eurozone. In fact, even Italy, even in the face of a stable government and the improvement of the rating, has a very high public debt, the cost of which could increase with the rise in BTP yields. Today, the 10 -year BTP highlights a performance of 3.69% still about ten points above the French one.
In expansion that the spread compared to the safer German Bund, with the tricolor spread again over 90 points and the French differential in expansion to 79.6.
“September traditionally coincides with an increase in the offer of sovereign titles, a factor that historically tends to weigh on European spreads”
underlines the Alliancebernstein expert, adding
“In the coming weeks we expect volatility to continue, especially in the short term, even if it should remain limited to French assets, without particular repercussions on the euro”.
