If the government falls, “There will probably be a pretty bad storm.” in financial markets. Is Michel Barnier’s prophecy of Tuesday, November 26 about TF1 already being fulfilled, perhaps, in part, because it was formulated by the Prime Minister? In any case, the specter of a France without a government or budget is starting to give investors chills.
As proof, the sudden tension, on Wednesday, November 27, in the financial markets. Given the proximity of a possible motion of censure from the left, which would be supported by the National Rally (RN) to overthrow the Barnier Government in the coming weeks, banks are demanding, from now on, charging higher interest on loans. money to France, perceived as a less safe country than before. On Wednesday, this rate hike caused the shares of large banks to fall on the stock market, and the CAC 40 fell 1.4% during the session, a sharper drop than that of all other European stock indices.
“The markets are very worried, says Bruno Cavalier, chief economist at Oddo BHF. Righting public accounts requires long-term actions. However, Michel Barnier is already on borrowed time and France could end the year without having adopted a budget for the next. We run the risk of entering unknown territory, without a map, without a plan. Markets put an increasingly higher price on this risk. »
“There is no respite in the short term”
It is in the difference between the rates required of France and those applied to Germany where this “risk premium” is best read. While banks lend to Germany at an interest rate of around 2.16% per year for ten years, at midday on Wednesday they asked France for 3.04%. That’s a difference of 0.88%. In the morning, this gap, this “spread” according to the established English term, even reached a maximum of 0.90%. Something unheard of in a dozen years.
Between France and Germany, this rate difference was only 0.20% in January 2021, at the time of the Covid-19 crisis. But over the years it has continued to rise slowly, and investors noted that Germany was quickly returning to its legendary budget seriousness – even if it meant going into recession – while France maintained its “whatever it takes” and he let the country rise. the deficit disappears. With the dissolution of the National Assembly, pronounced by Emmanuel Macron on June 9, and the hypothesis of the coming to power of the left or the extreme right, the gap suddenly worsened, going from 0.40% to 0.75%. Now the threat of a collapse of the government and its budget has taken it one notch higher.
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