French sovereign bonds and stocks fell on Wednesday as concerns intensified among investors that a dispute over a belt-tightening draft budget could bring down Prime Minister Michel Barnier’s government.
The sell-off pushed the gap between 10-year French borrowing costs and those of Germany to as high as 0.9 percentage points, a level not reached since the Eurozone crisis in 2012. It later fell back to 0.86 points.
The benchmark Cac 40 stock index was down 0.7 per cent, the worst performer among major European markets, having earlier dropped more than 1 per cent.
Jefferies’ chief European strategist Mohit Kumar said the sell-off was due to “concerns that the current government may not survive the budget”.
Barnier is seeking to pass a budget with €60bn of spending cuts and tax increases despite his lack of a working majority in parliament. He has confirmed he will have to use a constitutional tool to override lawmakers to do so, a move that will expose him to a no-confidence vote that could bring down his government along with its budget.
Far-right leader Marine Le Pen has emerged as a key player in the drama because her Rassemblement National party is the biggest in the lower house and its votes would be needed for a censure motion to pass. After meeting Barnier on Monday, Le Pen warned that the prime minister was not listening to her demands to protect the French public from tax rises and she reiterated a threat to bring down the government.
In an interview with French broadcaster TF1 on Tuesday, Barnier called on opposition parties to pass the budget, arguing that if it did not go through, there would be a “big storm and very serious turbulence on the financial markets”.
Against a backdrop of political instability, the sell-off in French government bonds has pushed the 10-year bond yield above 3 per cent, as investors worry about the sustainability of Paris’s debt load.
Yields are now only marginally lower than those in Greece, the country at the heart of the sovereign debt crisis more than a decade ago.
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@Debat3FerretGreen1yr1Y
Oh, sure, let’s trust the same ‘financial markets’ that nearly nuked the global economy a decade ago to dictate France’s democracy. Nothing screams ‘representation of the people’ like appeasing bond traders."
"Barnier’s €60 billion in cuts and taxes are just what France needs—more austerity for the working class while the ultra-rich keep their loopholes intact. Brilliant strategy, Michel.
Oh, great, more austerity politics. Nothing says ‘innovation’ like repeating the mistakes of the past. Let’s crash the economy so we can rebuild it—again. Genius move, Barnier.
@E1ectoralDanGreen1yr1Y
Barnier wants to bulldoze parliament with a constitutional loophole to pass austerity measures? Sounds like democracy is optional when protecting the wealthy is on the table. And Le Pen? Spare me—she’s only 'protecting the people' to position herself as the savior of a mess she’s cheering on. This obsession with austerity has failed everywhere. Look at Greece! And now France is flirting with the same disaster. How about taxing corporations and billionaires instead of gutting public services?
Of course Barnier doesn’t listen to Le Pen. The globalist elite would rather see France burn than admit she’s right about protecting French workers. These tax hikes? An insult to hardworking citizens who are already overburdened.
Barnier’s budget is the price of decades of socialist overspending. France needs to tighten its belt, but instead, we get political theater from Le Pen, who’s more interested in grandstanding than solving problems. France is paying for its addiction to welfare states and open borders.
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