France: PM Edouard Philippe has vowed to slash public spending - Rabobank

Michael Every, Senior Asia-Pacific Strategist at Rabobank, explains that we have news from France that the new Prime Minister Edouard Philippe has vowed to slash public spending to avoid what he called a debt “volcano that is rumbling ever louder,” and also slash corporate taxes, balanced out with more infrastructure spending.

Key Quotes

“It seems odd to describe 10-year French sovereign yields as a ‘volcano’ when they are at just 0.82%, far lower than in the US, for example, and were at just 0.60% - not far off the record low dating back to 1990 on Bloomberg.”

“Even that sudden spike in French yields only happened when central banks suddenly decided to pretend that they can raise rates on top of a debt volcano without it then going off as a result, rather than markets rejecting French debt as ‘too high’. It’s also odd when one recalls that whether one is for or against reforms, austerity itself has proved to be political poison almost everywhere it has been tried, and, as just noted above, is going to be introduced just as monetary policy is shifting in an unhelpful direction. And let’s not forget that the French market regulator, the Autorité des Marchés Financiers, yesterday stated their concerns over risks of a “systemic threat” from a “sharp market correction.” Can I make the prediction now that it not going to be just the debt volcano that “rumbles ever louder” given the French are not known to take publicspending cuts passively?”