The alarm on the unsustainability of public and debt launched by the French prime minister Francois Bayrou keeps the French government in check and beyond: the markets have reacted extremely vehemently to the news of the vote of trust on the government activity and on the cuts to shopping that will be carried out in close tour to contain the explosion of the debt. Bond returns continue to rise for the greatest risk prize and the differential with Italian titles has almost zeroed, while the stock exchange is experiencing days of passion, making the other European bags worse.
The Bayrou alarm on the debt
Cold shower from Prime Minister Bayrou in the return press conference after the summer break. The announcement that the government will ask the question of trust with a general policy declaration, based on its plan of cuts in public spending of 44 billion euros, has only partially caught off the markets, which for some time had been giving signals of nervousness. The date of the vote of trust was set for September 8.
There is no more time for France that needs to reduce the high deficit, which amounted to 5.8% of GDP at the end of 2024, through cuts in the welfare shopping and pensions and a review of the tax rates, at the levels of 2025.
Bayrou spoke of an “immediate danger” from over -indebtedness and warned that France must “face it today, without any delay”.
“The debit of debt has become chronic and this money, borrowed from hundreds of billions, was not used as it should have been, to invest”, but “for current expenses”
he said.
For the head of the French government, the country is going through “a worrying and therefore decisive moment” and Europe “should speak with a single voice. And instead it is too often divided”.
The reaction of the bag
The Paris Stock Exchange yesterday is turned clearly in the last part of the session, after Bayrou’s words, and closed at -1.59 percentage points. This morning, the market came to lose up to 2%and now maintains a drop of 1.51%, worse than the other European bags (Euronext 100 -1%index).
The tension on the yields of the bonds
The debt voltage makes itself felt above all on the bond market, whose returns have risen, breaking through the threshold of 3% and reaching the Italian ones. A situation that was not seen from the 2008 debt crisis. The performance of the French ten -year Oat is increasing today to 3.514%, now very close to the performance of our ten -year BTP which stands at 3.618%.
The spread has also almost achieved the Italian one for a double combined effect that sees the stability of the Meloni government and the promotion of rating agencies as a guarantee of debt reliability, which reduces the risk prize, while the worsening of tax metrics in France makes the fear of an uncontrolled explosion of the debt, increasing the risk prize. The effects are seen in numbers: the BTP-Bund differential has dropped to 87.9 points and stop just above 77.6 points of the Oat-Bund differential. Only two or three years ago the difference was over 200 points.
If you then look at the short deadlines with two and five years, the situation even appears overturned: the Italian titles make less than the French ones.
