America is more socialized than many leftists realize. France isn't really much further down the slippery slope to serfdom than we are and look at the mess they are in.
Investors Have Cause to Worry in France
Markets are noticing that an antireform candidate could win the presidency, and the results are ugly.
Bond markets are sending a message about this year’s election. PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGE
By
ROMAIN HATCHUEL
Feb. 16, 2017 3:23 p.m. ET
0 COMMENTS
With France’s presidential election still more than two months away, financial markets have already started pricing in the country’s political risk. The spread between France’s benchmark sovereign bond and its German equivalent hit a four-year high of 0.77% earlier this month, up from 0.3% in October.
Investors sense that the world’s sixth-largest economy could be on the cusp of financial chaos, the repercussions of which may be felt far beyond its borders. But the signs of rising anxiety in the markets so far may still not reflect the full story. There are at least two reasons for great concern.
First, it is hard to envision any positive outcome from this election considering the current roster of candidates. The only two presidential hopefuls to show some common sense in their assessment of the country’s main challenges are François Fillon, the former conservative prime minister, and Emmanuel Macron, the former center-left economy minister.
Alas, Mr. Fillon is mired in an ethics scandal that has significantly diminished his chances of even qualifying for the election’s May 7 runoff.
As for the 39-year-old Mr. Macron, his polling numbers suggest he is benefiting from a combination of Mr. Fillon’s troubles and a deeply divided Socialist-party majority. But his youth and smooth talk may not be enough for him to win the presidency as an independent candidate, given France’s polarized political system.
Meanwhile, Marine Le Pen, the leader of the far-right National Front, and Benoît Hamon, the Socialist-party nominee, have made such absurd or outright dangerous promises that news of their election would create a panic among the country’s creditors.
The other cause for concern is uncertainty over what any of these candidates would do once elected. France’s leaders have long cultivated a tradition of political posturing when trying to get elected. They promise many things on the campaign trail, but govern in a very different manner.
Consider Ms. Le Pen’s strange cocktail of nationalistic rhetoric and far-left economics. In addition to her anti-immigration stance, she has vowed to remove her country from the European monetary union and denominate France’s sovereign debt in a new national currency—a move that surely won’t sit well with global bond markets.
She also wants to bring the legal retirement age back to 60 years old, from the current age of 62, and boost several entitlement programs. This would further cripple the country’s fiscal situation. Such unrealistic proposals make it almost impossible to predict what policies Ms. Le Pen would enact should she enter the Elysée Palace.
Mr. Hamon focuses on traditional French socialist-communist chestnuts. In his world, every French adult, employed or not, would be eligible for a monthly salary paid by the state, regardless of the considerable cost involved. He also promises a tax on robots to penalize companies that use machines instead of humans. Who knows what would be left of such fantasies if Mr. Hamon takes the presidency?
Mr. Macron, France’s new political sensation, has sought to sever all ties with François Hollande’s dismal record. Never mind that he was the president’s economy minister until last year and a close adviser before that. Mr. Macron may pose as the antiestablishment candidate, but his resume is that of a quintessential career politician. And though he has been campaigning for months, he has yet to deliver a specific policy plan, sticking instead to platitudes in an effort to lure voters from all parts of the political spectrum. What he would do if elected is anyone’s guess.
France’s next president will inherit a country that has barely experienced economic growth in a decade and continues to suffer mass unemployment, with a 97.5% public-debt-to-GDP ratio that is one of the highest among developed economies.
A Le Pen or Hamon victory would likely trigger a massive selloff of France’s sovereign debt and jeopardize the stability of the entire eurozone. Investors should keep a close eye on this potential time bomb.
Mr. Hatchuel is a managing partner of Square Advisors, a New York-based asset-management firm.
Investors Have Cause to Worry in France
Markets are noticing that an antireform candidate could win the presidency, and the results are ugly.
Bond markets are sending a message about this year’s election. PHOTO: AGENCE FRANCE-PRESSE/GETTY IMAGE
By
ROMAIN HATCHUEL
Feb. 16, 2017 3:23 p.m. ET
0 COMMENTS
With France’s presidential election still more than two months away, financial markets have already started pricing in the country’s political risk. The spread between France’s benchmark sovereign bond and its German equivalent hit a four-year high of 0.77% earlier this month, up from 0.3% in October.
Investors sense that the world’s sixth-largest economy could be on the cusp of financial chaos, the repercussions of which may be felt far beyond its borders. But the signs of rising anxiety in the markets so far may still not reflect the full story. There are at least two reasons for great concern.
First, it is hard to envision any positive outcome from this election considering the current roster of candidates. The only two presidential hopefuls to show some common sense in their assessment of the country’s main challenges are François Fillon, the former conservative prime minister, and Emmanuel Macron, the former center-left economy minister.
Alas, Mr. Fillon is mired in an ethics scandal that has significantly diminished his chances of even qualifying for the election’s May 7 runoff.
As for the 39-year-old Mr. Macron, his polling numbers suggest he is benefiting from a combination of Mr. Fillon’s troubles and a deeply divided Socialist-party majority. But his youth and smooth talk may not be enough for him to win the presidency as an independent candidate, given France’s polarized political system.
Meanwhile, Marine Le Pen, the leader of the far-right National Front, and Benoît Hamon, the Socialist-party nominee, have made such absurd or outright dangerous promises that news of their election would create a panic among the country’s creditors.
The other cause for concern is uncertainty over what any of these candidates would do once elected. France’s leaders have long cultivated a tradition of political posturing when trying to get elected. They promise many things on the campaign trail, but govern in a very different manner.
Consider Ms. Le Pen’s strange cocktail of nationalistic rhetoric and far-left economics. In addition to her anti-immigration stance, she has vowed to remove her country from the European monetary union and denominate France’s sovereign debt in a new national currency—a move that surely won’t sit well with global bond markets.
She also wants to bring the legal retirement age back to 60 years old, from the current age of 62, and boost several entitlement programs. This would further cripple the country’s fiscal situation. Such unrealistic proposals make it almost impossible to predict what policies Ms. Le Pen would enact should she enter the Elysée Palace.
Mr. Hamon focuses on traditional French socialist-communist chestnuts. In his world, every French adult, employed or not, would be eligible for a monthly salary paid by the state, regardless of the considerable cost involved. He also promises a tax on robots to penalize companies that use machines instead of humans. Who knows what would be left of such fantasies if Mr. Hamon takes the presidency?
Mr. Macron, France’s new political sensation, has sought to sever all ties with François Hollande’s dismal record. Never mind that he was the president’s economy minister until last year and a close adviser before that. Mr. Macron may pose as the antiestablishment candidate, but his resume is that of a quintessential career politician. And though he has been campaigning for months, he has yet to deliver a specific policy plan, sticking instead to platitudes in an effort to lure voters from all parts of the political spectrum. What he would do if elected is anyone’s guess.
France’s next president will inherit a country that has barely experienced economic growth in a decade and continues to suffer mass unemployment, with a 97.5% public-debt-to-GDP ratio that is one of the highest among developed economies.
A Le Pen or Hamon victory would likely trigger a massive selloff of France’s sovereign debt and jeopardize the stability of the entire eurozone. Investors should keep a close eye on this potential time bomb.
Mr. Hatchuel is a managing partner of Square Advisors, a New York-based asset-management firm.
