Economic surveys that are falling, productivity at half mast, an unemployment rate that is rising… Between the start of 2024, when the government was banking on an “OG effect” and the current period marked by a feeling of loss of control, the contrast is striking. Two elements pushed France towards the doldrums: the dissolution of the National Assembly announced by Emmanuel Macron in June and the slippage in public finances, unprecedented outside of times of crisis. How to bounce back? The slightest headwind today seems capable of plunging the country into the start of a recession. Will the fatal blow come from the bond markets? Unless the trade war or bad weather destroys several sections of our economy, already bloodless even before any budgetary effort. L’Express reviews the main risks facing the new tandem of ministers Eric Lombard (Economy) and Amélie de Montchalin (Budget).
What if the Bayrou government fell in turn? What if the 2024 deficit turns out to be, once again, underestimated, due to slippage in Social Security spending? What if the agencies further lowered France’s credit rating? Investors’ patience has limits. Certainly, the spread, this gap between the ten-year rates at which France and Germany borrow, and which betrays less confidence placed in the French lender, seems stabilized. Despite the parliamentary palaver disconnected from the realities of the economy, the censorship of the Barnier team or the recent downgrading of Moody’s. But beneath this apparent calm there is nervousness: as the Asterès cabinet pointed out shortly after the fall of the government, “the spreads of our most comparable neighbors have fallen more than that of France”.
It is difficult to envisage relaxation in the short term. The difference in yield between assimilable Treasury bonds (OAT) and the German Bund, for a long time less than 50 basis points, seems well established around 80. “A surge beyond 100 is unfortunately possible: this has happened end of 2011, beginning of 2012, with peaks up to 160”, recalls economist Marc-Olivier Strauss-Kahn. The co-author of We bet you’ll love the economy! (Ellipses) notes three similarities with the current context. Political uncertainty: polls preceding the 2012 elections gave the advantage to the socialist candidate François Hollande, self-proclaimed opponent of “finance”. Budgetary concerns: the deficit reached 5% in 2011. Optical illusion, finally: against a backdrop of monetary easing in the euro zone, the fall in the French rate was hampered, due to a spread which continued to widen with that of Germany.
Impact on real estate loans
But 2025 is not 2012. At the time, the elections had dispelled doubts, with a clear majority voting for a budget that aimed to reduce the deficit, mainly through tax increases. This time, there is no sign of a lifting of the political fog in the coming months. Another dissimilarity: “Public debt to GDP in 2012 was around 80%, compared to more than 110% today,” adds Marc-Olivier Strauss-Kahn. However, higher refinancing rates will apply to this higher ratio. than before.”
Beyond the cost of public debt, the slightest drift in rates weighs on the economy. “Real estate loan rates, which are highly correlated with the OAT, would be penalized, points out Maxime Darmet, of Allianz Trade. Furthermore, banks could, out of prudence, restrict access to business credit.” Harmful for growth and tax revenues. Even if his preferred scenario remains at 80 basis points, the economist quantified for L’Express the effects of a spread to 112 basis points in 2025, average observed during the storm in the euro zone between October 2011 and June 2012. The negative impact on GDP would be 0.2 to 0.3 percentage points, growth would fall to + 0 .5% next year and the deficit would remain around 6%, instead of falling towards 5.8%. “It would not be catastrophic, but very worrying,” he concludes.
The European Central Bank will not let this happen, hope the optimists. A tool has indeed been created, in 2022, to come to the aid of a Member State “attacked by the markets”. But on the condition that its management of public finances is sound and sustainable… Difficult to argue when France is subject to an excessive deficit procedure.
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