France's political chaos brings borrowing costs to the same level as Greece's for the first time!
The political crisis brewing in France is spilling over into financial markets with the country's borrowing costs reaching record levels with debt-ridden Greece for the first time on Thursday. The yield spread between the two bonds between yields on 10-year French government bonds and their Greek counterparts narrowed to zero earlier on Thursday. The yield of the 10-year French bond was 3.0010%, while the same Greek bond yielded 3.030%.
Investors seeking the same interest in holding French debt as in holding that of the peripheral, debt-ridden economy, Greece shows the extent of concerns over political turmoil in France as the government, led by Prime Minister Michel Barnier, struggles to shore up support for the 2025 Budget that aims to cut spending and raise taxes to curb France's budget deficit.
As it stands, the left-wing New Popular Front alliance has said it will table a vote of no confidence in the government if Barnier tries to force through the budget, which includes tax increases and spending cuts worth 60 billion euros ($63.3 billion). . The far-right National Rally has threatened to back the left in a no-confidence vote, a move that would topple the government and plunge France into further political and economic uncertainty.
New elections cannot be held until next June, twelve months after the last parliamentary elections that saw the far left and far right perform well in the first and second rounds of voting, but both failed to win a majority. countries. As such, after the election, President Emmanuel Macron installed the conservative Barnier at the head of a minority government after the election.
French officials sought to protect the economy on Thursday, but acknowledged that bond investors seeing French debt as risky as Greece's was a worrying development. Economy Minister Antoine Armand said on Thursday that the French economy cannot be compared to that of Greece.
While nowhere near the level of crisis experienced by Greece in the wake of the global financial crisis of 2007-2008, France's economy appears to be in urgent need of attention; its budget deficit is expected to be 6.1% in 2024 and public debt has reached 110% of GDP in 2023. Countries within the EU are obliged to keep their budget deficit within 3% of gross domestic product and their public debt within 60% of GDP.
Greece experienced the eurozone's biggest sovereign debt crisis in the wake of the global meltdown in recent years, pushing the country into international bailouts that forced it to implement painful austerity measures and reforms. Since then, the country has been praised for progress in getting its economy back on track and reducing its debt.
Greece is expected to grow by 2.1% in 2024, according to the European Commission, which noted in November that "Greece's public debt-to-GDP ratio has been declining in recent years and is forecast to reach 153.1% in 2024, before falling further to 146.8% of GDP in 2025 and 142.7% in 2026.” The decline was driven by primary surpluses, nominal growth and a reduction in money reserves in 2024, he said.
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