Reuters Econ World: France’s Thanksgiving spread
By Carmel Crimmins
Nov 28 (Reuters) - Happy Thanksgiving to all who celebrate. I’m sure you’re looking forward to a fine spread of turkey and pecan pie. Over in Europe, we’re looking at a spread of a different kind ... the bond market type.
Political turmoil in Paris has investors spooked. This week, they pushed the spread – the premium they demand to lend to France for 10 years compared to Germany – to a 12-year high of 90 basis points. Investors are now demanding practically the same yield as they do to lend to Greece, once the poster child for Europe's debt woes. (Check out the chart below)
Pourquoi? A budget crisis is developing into a political one. Prime Minister Michel Barnier’s government could fall before Christmas and perhaps even by next week, if far-right and leftist foes force a no-confidence motion in his government.
Finance Minister Antoine Armand says he’s prepared to make concessions on the 2025 budget to avoid that happening.
It’s a lose-lose situation. If the government falls, it would open a period of instability and deteriorating finances. If it survives, it will only do so by caving in to demands to soften spending cuts, further weakening the country’s fragile public finances.
The 2025 budget bill seeks to squeeze 60 billion euros ($63.10 billion) in savings via tax hikes and spending cuts. The aim is to cut the deficit to 5% of economic output in 2025. This year it is expected to top 6%, twice the limit set by EU treaties.
France isn’t the only country in market crosshairs. Fresh U.S. sanctions against Russian banks put the rouble under big pressure this week, helping drive a 7% slide against the dollar on Wednesday. The currency has rebounded today after the central bank said it would stop buying foreign currency until the end of the year.
The rouble's fall is frustrating the central bank’s efforts to rein in inflation, which is surging as Moscow’s war in Ukraine grinds on. The central bank has already hiked its benchmark rate to 21% and a further increase may come next month. We looked at the strains of Russia’s ‘war economy’ in a recent episode of Reuters Econ World, tune in here.
And sticking with inflation, that’s the topic of this week’s pod. I talk to Rick Rieder, Global Chief Investment Officer of fixed income at BlackRock, about the outlook for inflation under President-elect Donald Trump. Plus, we take a detour to the night markets of Harare to hear what street traders there make of Zimbabwe’s latest efforts to introduce a new currency. Listen here.
The headlines
Australia passes social media ban for children under 16
EXCLUSIVE-Chinese ships gather near island disputed with Philippines
Israel says ceasefire with Hezbollah violated, fires on south Lebanon
Russia mounts massive attack on Ukraine's energy infrastructure, Kyiv says
The chart
France's political problems are driving French borrowing costs close to Greek levels. The spread -- the difference in yields on Greek and French 10-year government bonds and equivalent German bonds -- is razor-thin.
The podcast
"I don't think they're going to do a global tariff, but I think they can threaten it, and I think they can use it as a tool."Rick Rieder, Global Chief Investment Officer of fixed income at BlackRock, on President-elect Donald Trump's trade plans.
The real world
Beirut: Still counting its dead, Hezbollah faces long road to recoverfrom war
Moscow: Russia's economy struggles to find workers as defence sectorpoaches staff
Sydney: After Australia legislated a teen social media ban, it has to figure out how toenforce it
The week ahead
Nov 29: Elections in Ireland
Nov 29: Tokyo CPI
Dec 3: JOLTs Job Openings
Greece and France spreads this year https://reut.rs/3Zh7gvg
Editing by Catherine Evans
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