There are degrees of concern, but it is not panic yet. This is the message that the Minister of Economy, Antoine Armand, wanted to convey this Thursday on BFMTV.
“France is not Greece,” he insisted as the French 10-year bond rate briefly rose above Greece’s on Wednesday. France has a much greater economy, employment situation, attractiveness, economic and demographic power, which means that. “We are not Greece.”
At a strictly macroeconomic level, the two countries are not in the same category. France has 6.5 times the population of Greece, its GDP per capita is double and national economic assets in France exceed 20 billion euros (including 14,800 for households), which is almost eight times its GDP, a record. in Europe.
Regarding the issue of public debt, France is much better (or less bad) than Greece. The country’s liabilities reach 110% of GDP while Greece’s is close to 160%, the highest level in Europe. But the trend in Greece is towards debt reduction (40 points less since 2020, budget with a slight deficit of 1.5%), while France continues to increase its debt.
The differential doubled in 2011
The most worrying fact for the stability of the area is not the comparison with Greece but the spread with Germany, that is, the difference between the borrowing rates of the two countries. The higher this rate, the greater the risk and, therefore, the more expensive the country will go into debt. However, the yield difference between the 10-year German Bund, the euro zone benchmark, and the equivalent French OAT has risen to its highest level since 2012 in recent days.
“It is true that we are currently experiencing a stress phase with a differential of 90 basis points. [écart de 0,9 point entre les deux taux]recognizes Alexandre Baradez, IG analyst. But it has fluctuated a lot in recent months. We went from 50 to more than 80 during the legislative elections, then we went back down to around 70 and then it goes up again.”
However, even at 90, the spread The Franco-German situation does not reflect a state of panic in the market.
“During the sovereign debt crisis, the spread had risen to 180 points, it was in November 2011, recalls Alexandre Baradez. And what’s more, it was not France that was in the eye of the hurricane, the problem was Greece and the “PIIGS” [Portugal, Irlande, Italie, Grèce et Espagne]. HE spread between Italy and Germany had risen to 500 basis points, there was a real risk of breakup of the euro zone.
Proof that markets are not panicking: the ECB has not pulled out its fire hose (cutting rates) and has no intention of doing so. Thus, this Wednesday Isabel Schnabel, an influential member of the institution’s board of directors, ruled out the idea of a sharp reduction in official rates at its next meeting.
“No massive sales”
Furthermore, investors are not currently “dumping” French bonds, rather it is rates that are falling more elsewhere than in France.
“In the markets we do not sell French bonds en masse, we only buy a little less and we prefer to cover ourselves by buying German bonds, observes Alexandre Baradez. In Europe there has been a general drop in rates since Trump’s election. simply less strong in France, that’s why spreads are increasing.”
As is often the case, it is not bad news that the markets are punishing but rather uncertainty.
“Italy has a much higher level of debt than France, but it sends clear signals to the markets by setting a deficit target of 3% for 2026 and announcing sales of state participation, explains the IG analyst. For France, the market is good. “We do not expect drastic measures such as 40% cuts in pensions but simply convincing measures and no delays in the implementation of these policies.”
Expectations that the French political situation is far from satisfying.
Source: BFM TV
