There France is confirmed in the stormdue to uncertainties relating to Budget Law 2025which risks failure due to the fragmentation of the majority over spending cuts and tax increases. The Barnier Government everything is being played out on this match and risks fallingas threatened by opposition leader Marine Le Pen. The market is discounting this prospect for a few days already, with the ten-year yield on OAT, the French government bond, which reached its highest level since the Eurozone debt crisis at a in line with Greek headlines.
Spread at highest since 2012
The Spread OAT-Bund reached a 3% level, showing an enlargement of the Spread compared to the Bund German of 84 points. Just a year ago the spread was around 50 points.
Yesterday, the differential with the German benchmark stock had reached a maximum of 90 pointsthe level highest since August 2012when the Eurozone debt crisis had reached its peak. At today’s level, the differential with the Bund has practically reached that of Greece at 88 points and came very close to Italian spread, which stops at 124with a difference of just 40 points less than the 80 of a year ago.
Barnier government at risk
The Premier Barnier is trying to approve a Budget with 60 billion euroswhich predicts strong spending cuts and tax increases.
The Barnier Maneuver holds on by a thin thread, since the majority of the government is based on the abstention of the Rassemblement Nationalled by Marine Le Pen, who this time does not seem willing to turn a blind eye and asks the executive to account for the possible increase in electricity tariffs, the cost of new drugs and the indexation of pensions.
To ensure that the Economic Maneuver passes, Barnier should use one constitutional stratagem, with the risk of seeing the government fallif the vote of no confidence in the Budget were to pass.
Barnier, in an interview with the French broadcaster TF1, invited the opposition parties to approve the economic maneuver, fearing a “great storm and very serious turbulence on the financial markets”. I’m his too Minister of Economy Antoine Armand afìd aims to avoid the economic and financial “storm” and it is said willing to make “concessions” to the opposition parties.
France under observation
Barnier’s maneuver aims to reduce the deficit to 5% of GDP by 2025. Currently, the French deficit is moving rapidly towards 6% thresholddouble the 3% limit agreed with the EU.
Brusselsin fact, has already started the usual monitoring procedure for France “excessive deficit” with the aim of cutting the deficit within a five-year period.
A recent report by Assiom Forex had put the spotlight on “France risk”, signaling the possibility of a disorderly movement of French spreads (ten-year in the 3.30% / 3.40% area), which could also influence the transmission of the ECB’s monetary policyforcing her to intervene on OAT as done with BTPs, through the extraordinary tools at its disposal (QE, TPI or OMT).
