By Swann Collins, investor, writer and consultant in international affairs – Eurasia Business News. November 28, 2024. Article no 1320.
French borrowing costs have reached a significant milestone, matching those of Greece for the first time in history. This development follows a week of increasing anxiety surrounding the stability of the French government, led by Prime Minister Michel Barnier, amid rising debt levels and political turmoil.
Yield Comparison: On November 28, the yield on 10-year French bonds briefly climbed to 3.03%, equaling that of Greek bonds, which also hovered around similar levels. This is a stark contrast to the situation a year ago when French borrowing costs were considerably lower than Greece’s.
Political Context: The rise in borrowing costs is attributed to fears regarding French Prime minister Michel Barnier’s ability to pass a contentious budget that proposes € 60 billion in tax increases and spending cuts. If opposition parties, particularly from the far-right and the far-left, proceed with threats of a no-confidence vote, it could exacerbate the already precarious fiscal situation of France, whose the state public debt in november 2024 reached € 3,230 billion , with a budget deficit of € 170 billion.
At the end of Q2 2024, French public debt in the sense of Maastricht was € 3,228.4 billion, an increase of €68.9 billion, after +€58.2 billion in the previous quarter. Expressed as a percentage of gross domestic product (GDP), it climbs to 112.0%, after 110.5% in the first quarter of 2024, according to INSEE.
French state debt was € 2,100 billion in 2019.
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Historical Perspective: The current yields highlight a dramatic shift from the eurozone crisis in 2012 when Greek yields were over 30 percentage points higher than those of France. At that time, Greece was on the verge of default, while France was considered a safer investment within the eurozone. Now, France faces the risk on default on its public debt.
Market Reactions
Investor sentiment has soured towards France due to its mounting debt, now at 112% of GDP, and concerns about political stability. Analysts warn that without significant reforms—similar to those undertaken by Greece and other PIGS countries (Portugal, Italy, Greece, and Spain)—France may face prolonged fiscal challenges. This situation has led some investors to reconsider their positions in French bonds in favor of other European markets.
Conclusion
The alignment of French and Greek borrowing costs serves as a critical indicator of shifting investor confidence and highlights the urgent need for effective fiscal management in France. Up to € 9 billion is estimated to be lost to social fraud, which includes evading social contributions payments or overcharging medical treatments. Tax evasion is estimated from € 50 billion to € 100 billion (theft of VAT payments and tax credits).
As S&P Global Ratings prepares to reassess France’s creditworthiness following recent downgrades from other agencies, market participants are closely monitoring developments that could influence future borrowing costs.
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© Copyright 2024 – Eurasia Business News. Article no. 1320.
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