France is one of the indebted countries in Europe and the new left wing government has rolled out its spending and tax plans which include:
Increase the minimum wage by 14%
Reduce the retirement age from 64 to 60
90% tax on the rich
Freezing prices in the shops
Increase government spending by at least £150 billion
When the euro-zone was formed it was declared that government debt should not exceed 60% of GDP (page 9 for details):
France is currently at 100% and is accused of hiding some of its debt
Modern economics - everyone trying to live off everyone else
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We’re coming full circle back to the original idea of slavery. You work, I eat.
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Since these are proposed plans, they are considered OT for this board.
Just saying.
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Well, it’s good enough for Bloomberg:
https://www.bloomberg.com/news/articles/2024-07-09/moody-s-warns-on-french-debt-outlook-amid-political-gridlock
…and most of the serious financial press as well - papers are full of it. Yields on French bonds have been spiking upwards all day:
It’s certainly upset the euro bond market:
This could quickly turn into a euro-zone crisis
sigh
I feel boorish when I have to explain a joke:
In the past couple of days, there have been several posts on METAR which were pure politics and had no link to Macroeconomics.
The rule is: No politics on METAR!!!
I will flag all political posts. Otherwise, METAR will degenerate into a morass of political wrangling, which is off-topic and has happened before.
Politics can affect Macroeconomics but that is pretty rare. Political posturing and proposals that have NOT been signed into law yet count as politics and will be removed. Only after a …
Note the part about proposals not signed into law yet.
Hawkwin
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I’ve been watching the French economy for some time - it has been defying gravity but is now slipping into the same mess as the Italian economy (and a few others).
I suspect that the French bond market might well be one too many for the ECB to bail out:
https://www.reuters.com/markets/europe/can-france-count-an-ecb-rescue-if-vote-upsets-markets-2024-07-04/
French stocks and government bonds struggled to find direction Monday following surprise results in France’s parliamentary elections, which saw left-wing parties outperform the far right Sunday, leaving the country’s parliament facing gridlock.
This could be one of those black swan moments.
But proposal are things that move markets, particularly the bond market that is so highly leveraged and mired in derivatives.
In 2022 the UK Chancellor, Kwasi Kwarteng, proposed a ‘give away’ budget that panicked the bond market. It caused chaos and resulted in a massive sell off of UK bonds as dealers tried to cover their positions:
On 23 September 2022, the Chancellor of the Exchequer, Kwasi Kwarteng, delivered a Ministerial Statement entitled "The Growth Plan" to the House of Commons. Widely referred to in the media as a mini-budget (not being an official budget statement), it contained a set of economic policies and tax cuts such as bringing forward the planned cut in the basic rate of income tax from 20% to 19%; abolishing the highest (45%) rate of income tax in England, Wales and Northern Ireland; reversing a plan T...
If nothing else this shows the delicate state of Western bond markets, and by implication, their underlying economies:
