France's Political Turmoil and Economic Crossroads
France's political landscape is facing a period of uncertainty following the historic no-confidence vote that ousted Prime Minister Michel Barnier. This political upheaval coincides with a remarkable economic shift, as Greek bonds have achieved parity with French sovereign debt for the first time since the Eurozone crisis.
Mohamed El-Erian, Allianz's Chief Economic Advisor, highlights the growing intersection of political and economic challenges in France. He distinguishes the current situation from Britain's 2022 "Liz Truss moment" due to France's Eurozone backing and different global financial context.
The political turmoil comes as Greek 10-year sovereign bonds closed their yield gap against French bonds in late November, trading below 3%. This turnaround is attributed to Greece's fiscal discipline and economic reforms, with the country expecting a primary budget surplus of 2.4% of GDP this year.
Meanwhile, France faces mounting pressure over its rising debt-to-GDP ratio, projected to reach 118% by 2027. This contrasts with Greece's projected economic growth of 2.3% in 2025, compared to France's 0.8% growth forecast.
Barnier's removal followed parliamentary opposition to his proposed €60 billion spending-cut package. This political stalemate threatens to complicate France's fiscal consolidation efforts.
President Emmanuel Macron is expected to name a new prime minister, but the political deadlock in the Assembly will likely persist until new elections in July.
El-Erian notes that while France benefits from Eurozone institutional support, the current situation "will undermine growth and raise borrowing costs."
Investors can track the market's response to this political turmoil via the iShares MSCI France ETF EWQ, offering exposure to the French economy. The ETF's top holdings include LVMH Moët Hennessy Louis Vuitton, TotalEnergies, and Schneider Electric.