Everyone now knows about the embarrassing conditions of the political situation in France. Condemned to have a President of the Republic who will never be able, at least until his mandate expires in two years, to find a Prime Minister who has a majority in Parliament. A mousetrap, from an institutional point of view. But few know about it great fragility of that country’s public finances. This year they will close with a deficit double what would be foreseen by the treaties and equal to 6.2 percent: it was necessary to resort to an increase in debt to pay public salaries. The debtconsequentially, has exceeded 3,200 billion (about 400 billion more than the highly indebted Italy).
All topped off by the fact that their financial law was not approved. German newspapers joked: for the French it is easier to rebuild Notre-Dame than to present a budget estimate. It is clear that the markets immediately tried to take some precautions. Interest on French government bonds has risen and there are those who are starting to sell Parisian OATs (their public bonds) to buy Roman BTPs. Stuff you wouldn’t believe.
France, however, has built a large financial Maginot Line over the years. It can collapse, as happened during the war. But for the moment it holds. During turbulence it proves effective. It allows them to buy time. In any other European country, only half of the things happening in Paris would have caused massive capital flight. As happened in Greece and Italy in 2011. Their Maginot Line is the domestic banks. The Eba, the European banking authority, has just published some very interesting data. Here they are. 526 billion of French debt are in the hands of French banks, compared to the 250 held by banks in Italy and Spain, or the 120 in Germany. Which means that the country system, together with the banking system, do not start speculating against themselves. French taxpayers are in a very bad situationbut they wash their dirty clothes at home. This is certainly not the perfect market. A bank should calibrate the risk it takes by investing so much in a single debtor, and one in such a bad position at that. This is a lesson for our government.
It is good to incentivize the purchase of debt by Italian savers, but it is much more important don’t give up on the decision-making centers of our savings investments managed by those who think by nationality and not by market. French financial conservatism passes through three pillars: SocGen, Bnp Paribas and Crédit Agricole. Our?
Nicola Porro for The newspaper
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The article Macron’s lifesaver comes from TheVermilion.com.