(Finance) – It was one week to forget for CAC 40the reference index of the French stock market, which has under-performed compared to all the other European stock exchanges, but above all it is the risk premium on French government bonds to give an idea of the extreme uncertainty caused on the markets by President Emmanuel Macron’s decision to dissolve parliament and call early elections.
The differential ten-year yield between France and Germany travel around the 76 basis pointsa level that had not been recorded since the Covid crisis of March-April 2020. Although the 10-year OAT yield has fallen by around 15 basis points compared to the peaks at the beginning of the week, returning almost to last Friday’s levels, that of the Bund at 10 years old it dropped significantly, thus causing the gap to widen.
The spreads on the Bund of Italy, Greece, Spain, Portugal they are at 158 basis points, 127 bps, 93 bps and 77 bps respectively.
Investors are pricing in the prospect that the Macron’s centrist and pro-business party, Renaissance, loses further ground in Parliament in the two-round vote, on 30 June and 7 July. This could lead to the president appointing a prime minister from Marine Le Pen’s party, with Macron saying he would not resign regardless of the election result.
“It is likely that the recent reconstruction of the risk premium persists until investors have clarity on the outcome of the next legislative elections”, analysts wrote Goldman Sachs.
As if that weren’t enough, in the aftermath of the agreement reached for a “new popular front” of the left, the French Economy Minister Bruno Le Maire he harshly attacked the proposals of the left bloc. “The program of the new Popular Front is total delirium – he told France Info – it is a return to 1981 multiplied by 10, it is the certainty of downgrading and leaving the European Union”. In particular, the proposed 60-year pension would cause a “guaranteed economic collapse”, “the return of mass unemployment for all French people” and “the failure of public finances”.
To a question whether the current political situation in the country could lead to one financial crisis, Le Maire answered “yes”. “Today we pay more than Portugal for our debt – said Le Maire – This is due to the political programs that are on the table regarding the question of whether we will be able, yes or no, to continue to finance this debt”.
In recent days the warnings from rating agencies. Moody’s said the early parliamentary elections announced by Macron “increase risks to fiscal consolidation, a credit negative. Fitch said the elections “increase uncertainty over the country’s fiscal consolidation path and prospects for further reforms economic”. Scope highlighted that the outcome of the elections “could further limit the government’s ability to address the most urgent credit challenges, including the consolidation of public finances”.