Taking more than ten years soon could cost France more than in Italy. After Spain and Portugal, which already benefit from better rates, Hexagon increased instead as a budget student in Europe.
In early July, the Italian sovereign debt rate in the 5 -year expression fell under the French rate, the first since 2005.
The next strong signal could come from the indebtedness rate at ten years, the reference for international comparisons and, therefore, to evaluate the financial reliability of a state in the eyes of the markets.
“Huge efforts”
The French rate at the age of ten, currently at 3.37%, is in the heart of concerns since the gap is reduced with that of Italy, to 3.54%. The “propagation”, or the gap between the two, “is reduced to the skin of pain,” says Mabrouk Chetouane, manager of the Natixis IM market strategy.
Now it is less than 0.2 percentage points, against 1.20 points a year ago. The curves could cross.
“We are at a critical moment in our history,” French Prime Minister François Bayrou said on Tuesday, presenting his measures to repair the finances of a country subject to the “deadly danger” of “debt.”
He recalled that the public deficit of France reached 5.8% of GDP in 2024, for public debt that represents almost 114% of GDP, the third largest in the euro zone behind Greece and Italy.
According to the projections of the European Commission published in May, France should register the worst public deficit in the euro zone in 2025 and 2026.
France is “buried in low economic growth, public finance out of control (…) and a qualification that tends to deteriorate,” continues Philippe Ledent.
The S&P agency has improved last April the qualification of Italy’s public debt with “BBB+”, accompanied by a “stable” perspective, when the French debt note (AA-) has agreed with a negative perspective since February, which means that it could be degraded.
“Spectacular pragmatism” against political blockade
Front, despite the reach of the Italian debt, about 3,000 billion euros in 2024, or 135.3% of its GDP, Rome recovered the favor of the markets.
The president of the Italian Council Giorgia Meloni and his government, under high pressure to reduce this colossal debt, “showed quite spectacular economic pragmatism,” says Mabrouk Chetoouane.
The Italian public deficit was more than expected in 2024, to 3.4% of the gross domestic product (GDP). The best fiscal income than anticipated even allowed to return to a surplus of public accounts in the fourth quarter of 2024, which had not happened since 2019.
What “considers that Italy is better capable of administering its debt than France,” according to Benjamin Melman, asset assignment manager at Edmond de Rothschild.
And since the dissolution of the National Assembly in June 2024, investors feared political blockade.
Therefore, they require greater performance to have a French debt, “a” legitimate “bonus because there is a risk that the country becomes unusable,” says Mabrouk Chetoouane.
The announcement of François Bayrou of a draconian budget cure of 43.8 billion euros by 2026 did not move the bond market, which remained of marble. An indifference that should last while the measures presented do not materialize.
For Philippe Ledent, “we will have to approve this course, and probably one or another censorship (from the Government) at the beginning of the school year.”
Source: BFM TV
