FISCAL MESS
France’s EU peers will be watching closely.
France holds the highest deficit as a percentage of GDP in the euro zone, the bloc using the EU’s single currency. It pays more to service its debt than Spain and spreads against benchmark German 10-year bonds are at their highest level in four months.
Fitch, often seen as a first mover among rating agencies, reviews its AA- rating with a negative outlook on Sep 12. Moody’s and S&P Global, which have equivalent ratings, follow in October and November.
A downgrade would hamper France’s ability to raise money at low interest rates from investors, potentially deepening its debt problems.
A lengthy period of political and fiscal uncertainty risks undermining Macron’s influence in Europe at a time when the United States is talking tough on trade and security, and war is raging in Ukraine on Europe’s eastern flank.
The Socialists have offered a counter-budget that would impose a tax of at least 2 percent on personal wealth greater than 100 million euros and generate savings of 22 billion euros, a proposal that would be tough to marry with the pro-business reform agenda of Macron’s presidency.
Discontent may also start brewing on the streets. A grassroots protest movement called “Bloquons Tout” (“Let’s Block Everything”) is calling for nationwide disruption on Wednesday. Trade unions are plotting walkouts the week after.
Like many in France, Mohamed, 80, who sells produce at the Aligre market in Paris, doesn’t think the politicians will find a way out.
“Come back in 10 days and you’ll see nothing will have changed. There won’t be a majority, there will be no budget.”
