Table of Contents
- 1 “Loans to France are judged to be as risky as Greece.”
- 2 Uncertainty increases as the ruling and opposition parties continue to stall on next year’s budget
- 3 **How might the high bond yields impact France’s ability to finance its deficit reduction plans, and what alternative strategies could the government consider to mitigate this challenge?**
“Loans to France are judged to be as risky as Greece.”
Uncertainty increases as the ruling and opposition parties continue to stall on next year’s budget
French Prime Minister Michel Barnier speaking in the House of Commons
[로이터 연합뉴스 자료사진. 재판매 및 DB 금지]
(Paris = Yonhap News) Correspondent Song Jin-won = Bloomberg News reported on the 28th (local time) that due to the deadlock in French politics over next year’s budget, the interest rate on French 10-year government bonds has reached the Greek level for the first time in history.
The interest rate on French 10-year government bonds, traditionally considered the safest in Europe, rose to 3.05% at one point in early trading the previous day.
It is a level that surpasses the interest rate on Greece’s 10-year maturity government bonds (3.02%), which were classified as ‘unsuitable for investment’ by major credit rating agencies until last year.
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AFP pointed out that this means that the market believes that loans to France are as risky as Greece.
“Of course there is room for fiscal maneuver in France, but this case is symbolic,” Aurelien Buffot, a bond manager at Drubac Asset Management, told AFP.
Since President Emmanuel Macron declared early general elections in June, government borrowing costs in France have been rising faster than in other European countries.
The previous day, the interest rate difference (premium) between German government bonds and French government bonds was 87bp (1bp = 0.01% point), hitting the highest since 2012.
Experts believe that France’s fiscal deficit and the budget conflict between the government and the opposition party are reflected in the market.
To lower the fiscal deficit, which is expected to be 6.1% of gross domestic product (GDP) this year, to 5% next year, the Michel Barnier government will cut spending by 41.3 billion euros (approximately 61 trillion won) and raise 19.3 billion euros (28 trillion won) through increased taxes on large corporations and the wealthy. A budget proposal was submitted to collect an additional tax of 500 billion won.
Accordingly, the left-wing coalition in the House of Representatives is opposing the budget plan, saying that inequality will deepen due to the government’s reduction of social welfare and public services. Another force, the far-right National Coalition (RN), also adheres to the ‘red line’ that the tax burden on individuals or companies should not be increased.
In the face of opposition opposition, the government maintains that it can process the budget bill without a vote in the House of Representatives in accordance with its constitutional authority. Article 49, Paragraph 3 of the French Constitution allows the government to pass legislation without a vote in parliament under the responsibility of the Prime Minister when it determines that there is an emergency.
In response, the opposition party is warning against passing a no-confidence motion in the government.
Regarding the deadlock with the opposition, French Minister of Finance and Economy Antoine Armand told BFM TV on the 28th, “Barnier’s door is always open,” and “we are definitely ready to make concessions to avoid the (political) storm.” It was.
He also said, “France has much greater economic and demographic power than Greece,” and expressed market concerns by saying, “France is not Greece.”
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2024/11/28 20:01 Sent
**How might the high bond yields impact France’s ability to finance its deficit reduction plans, and what alternative strategies could the government consider to mitigate this challenge?**
## France’s Fiscal Woes: Bond Yields Surge to Greek Levels Amid Budget Stalemate
**Paris:** In an alarming development, the interest rate on French 10-year government bonds reached a historic high, surpassing the rate on Greece’s equivalent bonds for the first time ever. This unexpected surge, attributed to the ongoing political deadlock surrounding next year’s budget, casts a shadow over France’s economic stability and raises concerns about the nation’s creditworthiness.
Bloomberg News reported that French 10-year government bonds, traditionally seen as a safe haven in Europe, hit a startling 3.05% in early trading on Tuesday, exceeding the 3.02% rate on Greek bonds. This parity, highlighted by AFP, underscores a stark message from the market: investors now perceive lending to France as carrying the same level of risk as lending to Greece, a country previously considered financially distressed.
**Political Uncertainty Fuels Investor Anxiety:**
The driving force behind this concerning trend is the political impasse in France. Since President Emmanuel Macron’s decision to call early general elections in June, government borrowing costs have been increasing at a faster rate than in other European countries.
Aurelien Buffot, a bond manager at Drubac Asset Management, emphasized the symbolic significance of this situation, stating, “Of course there is room for fiscal maneuver in France, but this case is symbolic.”
The widening gap between German and French government bond yields, reaching a 11-year high of 87 basis points on Tuesday, further amplifies the market’s anxieties. This difference reflects the growing perception of risk associated with French government debt.
**Twin Deficits and Budgetary Discord:**
Experts point towards two key factors contributing to this crisis: France’s substantial fiscal deficit and the ongoing budget conflict between the government and opposition parties. With a projected deficit of 6.1% of gross domestic product (GDP) for this year, the Macron government aims to reduce it to 5% by 2025 through drastic spending cuts of 41.3 billion euros (approximately 61 trillion Korean won).
However, achieving this goal faces significant hurdles due to fierce opposition from various political factions who demand alternative solutions to address the budget shortfall. This standoff has created a climate of uncertainty, deterring investors and fueling market volatility.
**Looking Ahead:**
The trajectory of France’s financial future hinges on the ability of the government and opposition to bridge their differences and reach a consensus on the budget. Failure to do so risks further erosion of investor confidence, potentially leading to a downgrade in France’s credit rating and wider economic repercussions.
The coming weeks will be crucial in determining whether France can stabilize its financial position and regain the trust of the international markets. The world will be watching closely to see if the nation can navigate this turbulent period and emerge stronger.
