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France’s borrowing costs have exceeded Greece’s for the first time in history, amid growing fears that Michel Barnier’s government will not be able to pass an austerity budget.
The yield on 10-year French government bonds briefly reached 3.02% in early trading on Thursday, above the 3.01% yield demanded by Greece’s lenders, but has since reversed.
This crossover reflects a seismic shift in risk perception among euro area borrowers and highlights investors’ concerns about France’s fiscal situation and political instability.
“It looks like French politics is about to collide with the bond market,” said Andrew Pease, chief investment strategist at Russell Investments. “I think we know who will win.”
Amid the market move, French Finance Minister Antoine Armand sought to deny any comparisons between the French and Greek economies.
“France is not Greece. He called on people not to weaken the country in pursuit of profit.
“We can continue to work together responsibly to improve our budgets…or there is another uncertain path…to jump into uncharted budgetary and financial territory. “It will be,” he added.
The French government bond market suffered its worst sell-off in two years in the five trading days through Tuesday, according to flow data from BNY Investments. Jeff Yu, senior market strategist at BNY, said this was “the most concentrated round of selling.” . . since the height of the European energy crisis in late 2022. ”
France’s borrowing costs remain well below levels signaling a bond market crisis, but Thursday’s changes highlight investors’ reclassification of Paris as one of the euro zone’s riskier borrowers. are.
This also reflects the dramatic fall in Greek government bond yields since the 2012 crisis, when Greece received a historic bailout, indicating a significant improvement in economic strength. Last year, the company’s credit rating was raised to investment grade for the first time.
Barnier’s minority government is finalizing a budget that would impose 60 billion euros in tax increases and spending cuts. Since the government does not have enough votes in parliament, it will likely need to use constitutional mechanisms to bypass MPs and pass a budget, allowing the opposition to vote on a no-confidence motion. It will be.
Barnier’s fate will be largely in the hands of far-right party leader Marine Le Pen. His National Party is the main voting group in parliament. Le Pen has increasingly threatened to move the RN against the government if budget demands, such as raising electricity taxes and reducing reimbursement for medicines and doctor’s visits, are not met.
Mr. Barnier and Mr. Le Pen’s aides have been negotiating behind closed doors in recent days. Armand said the government was “clearly prepared to make concessions” in financial markets to avoid the storm, adding that the opening also included the electricity tax issue, which has been a priority for Le Pen.
France’s budget deficit is on track to exceed 6% of gross domestic product (GDP) this year, more than double the EU’s target of 3%. Brussels has imposed an “excessive deficit” monitoring process on France, urging it to reduce its budget over five years.
Asked about his willingness to make concessions on health costs, Armando said: “We are ready to make certain concessions in any area,” adding that an all-out effort is needed because budget cuts are needed.
Barnier’s government has been forced to make concessions across the budget in recent weeks, potentially making the country’s goal of returning the budget deficit to 5% of domestic output by the end of 2025 impossible. France has exceeded its budget deficit target this year and will continue to do so. It finished at more than 6 percent of GDP, well above the EU limit of 3 percent of GDP.
