A surprised reaction, yes. A bit of speculation, for sure. But do not panic. Monday June 10, the day after the victory of the National Rally in the European elections, and the announcement of the dissolution of the National Assembly in France by Emmanuel Macron, the behavior of the financial markets was under surveillance. Were interest rates on French debt going to soar, a sign of lenders’ distrust? The slightest basis point separating the German (Bund) interest rate a little further from the French (OAT) was interpreted as a sign of stress. Some also noted that the 10-year yield on French debt reached a level not seen since last November, at 3.20%.
In reality, the impact of the political earthquake of June 9 appears to be rather measured for the moment. “At this stage, the spread [NDLR : écart, dans le jargon financier] between the OAT and the Bund is very limited, up 7 basis points compared to Friday. In other words, the difference in remuneration between the two sovereign bonds increased from 0.48% to 0.55%, explained Monday midday to L’Express the head of market analysis at IG, Alexandre Baradez. At the height of the debt crisis in the euro zone, in 2011, this gap had climbed to 190 basis points! the rating agencies – in particular Standard & Poor’s, which upgraded French debt to AA- from AA on May 31 – had changed nothing.
Is today’s slight bout of temperature lasting? “The best comparison we can make is with Giorgia Meloni,” says Christopher Dembik, economic advisor to Pictet AM. When the Italian Prime Minister came to power, many commentators expected a surge in sovereign interest rates. “They just tensed up at the announcement of his victory,” continues the expert. “All these parties are facing the reality test, they are forced to smooth out their policies. We generally observe a normalization effect linked to the exercise of power, unless in an extreme case with a government that wishes to structurally change institutions, as is observed in South America.”
“We cannot rely on the RN program for 2022”
What reassures those who are worried about the drift in public finances and fear the coming to power of a party which advocates retirement at 60 and does not want to hear about deindexation of pensions? “We would expect politicians, especially those who call themselves sovereignists, to treat public debt as a problem of national sovereignty. This is not the case,” pointed out Bruno Cavalier, the chief economist of Oddo BHF, at the beginning of June. For Denis Ferrand, economist and director of Rexecode, “we cannot rely on the 2022 program. In the meantime, the energy shock has passed, and the situation of public accounts has deteriorated”. What about the specter of Liz Truss, the British Prime Minister whose program, presented in autumn 2022, out of step with the economic context, had caused a financial storm? The specialists interviewed do not believe in this scenario, rather convinced that the RN will have to be pragmatic if it finds itself master of the game. Between yesterday’s promises and tomorrow’s potential announcements, a gap is possible.
Today, if the political uncertainty created by the thunderclap of dissolution does not cause panic, it is because the RN has already watered its wine. The spread had climbed to 80 basis points after the first round of the 2017 presidential election, a prelude to the Macron – Le Pen duel. But Frexit is no longer on the menu of Marine Le Pen’s party and the scarecrow of leaving the euro has therefore ceased to frighten investors. The very recent easing of European monetary policy has also made it possible to limit the consequences of the latest events on rates. “We must not take this stability for granted forever,” Oddo BHF economist Bruno Cavalier nevertheless warned yesterday.
If rates do not spiral out of control, the stock markets will be more shaken. The CAC 40 index slipped more than 2% at the worst of Monday’s session, weighed down by its banking components. “Investors have reduced their exposure to French risk through equities, recognizes Alexandre Baradez. They have sold the banks, large holders of French debt securities, and against a backdrop of more general fear about the economy, they have also unloaded dealers.” And for good reason: Marine Le Pen’s program during the 2022 presidential election included the nationalization of highways… Vinci and Eiffage fell by more than 5%. To a lesser extent, the luxury champions have also lost ground. “These values are strongly dependent on international trade,” notes Alexandre Baradez. In other words, any desire to withdraw into oneself would be unwelcome for world champions like Hermès or LVMH.
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