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France is heading for a financial crisis that could bring down the eurozone

--- Lainaus ---With the yield on France’s massive debts rising, and with equities crashing, Macron has lit the fuse on a eurozone debt crisis – and he won’t be able to put it out.
True, French politics is often chaotic, and parties rise and fall. But this time around, it is the reaction of the financial markets – ordinarily detached from political shenanigans – that is most troubling. On Monday morning French bonds and equities tumbled, and they have carried on falling steadily ever since. The spread between French and German 10-year government bonds, the key measure of the country’s risk, witnessed its biggest weekly spike since 2011, right at the start of the Greek crisis.
In reality, a French debt crisis has been simmering for years. Its credit rating has been downgraded twice in the last six months. The overall debt burden has soared to 112pc of GDP. It now ranks third in the world for total outstanding debt, behind only Japan and the United States, both far larger economies that also have their own currency.

It has not balanced the budget for 50 years, and even with the eurozone economy recovering from the pandemic, it is still running a deficit of 5.1pc of GDP this year, well ahead of its forecast level.
The National Rally that looks set to form the next government might be described as “far Right” but such claims are incompatible with its economic programme.
In the past, it has flirted with leaving the euro, a move that might benefit the economy in the long-term, but would be catastrophic for investors. Many analysts, plus the finance minister, are warning of a “Liz Truss moment”, referring to the crisis in the bond markets that ultimately led to her departure from Downing Street in 2022. But it could be a lot worse than that.
One point is certain, however. There are no good outcomes. For far too long, France has been living more wildly beyond its means than Britain and many other European countries, building up massive debts to subsidise an economy where the state is too big, and welfare too generous.

The crunch point now looks as if it will arrive very soon. President Macron is igniting a fresh eurozone debt crisis, one that will rival – perhaps even surpass – the Greek chaos of 2011 and 2012.

--- Lainaus päättyy ---


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