Emmanuel Macron’s second attempt to establish a government in France has been “welcomed” by a downgrading of the French sovereign debt by Moody’s. The same day that Macron announced François Bayrou as next prime minister, Moody’s downgraded French debt from A3 to Aa2. That means that France will have to pay more interest to finance its national debt.
France has the largest national debt in the EU, with €3.2 trillion. It also runs one of the highest deficits, with a 6% ratio to GDP this year. The Barnier government fell on the effort to drastically reduce the deficit with a €60 billion austerity package, which was rejected by both the left and the right in the Parliament. Bayrou has signalled that he will follow a similar path, by saying that France “must climb the debt Himalayas.” The “markets” now bet on the impossibility of achieving that result.
The game being played with France’s future is following the same script we have seen applied to countries such as Italy and other countries: EU rules ("Stability Pact") have set a balanced budget target which is achievable only through drastic cuts on health, welfare, school, investments etc. As governments meet expected opposition to carry out such cuts, the “markets” organize a run on that government sovereign debt. At the end of the day, financial investors make a killing on the increased yields on that debt, whose level has meantime increased. The spread between French and German bonds is now at between 85 and 90 basis points, the highest in a decade.
About 35% of French debt is owned by international investors, what Solidarité et Progrès president Jacques Cheminade called “financial feudal powers,” which makes it vulnerable to speculative attacks.
