France Now Has to Face the Bond-Market Risk

A political shock in France has forced bond investors to confront the reality that the nation’s fiscal deficit is an issue for here and now, not years down the road.

The country has long benefited from investors dismissing the threat posed by its poor public finances given its core position within the euro area.

That calm is now at risk.

France was already on a collision path with the European Union, which is starting to clamp down on member states in breach of fiscal rules. 

“What is clear is that with an expected deficit of close to 5% of GDP in 2024 and debt at around 111% of GDP, France is starting from a strained fiscal position, and left-wing parties will not be willing partners in fiscal consolidation.”

Whatever government emerges will have to immediately begin negotiations on a new path to get the budget deficit below 3% of economic output.

Bloomberg 9 July 2024

https://www.bloomberg.com/news/articles/2024-07-09/france-s-election-shock-alerts-bond-market-investors-to-fiscal-deficit

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