"France is starting to really freak out investors", says Sar Sjolin on MarketWatch.com. This week French bond prices slipped to an 18-month low, sending the ten-year government bond yield (yields move inversely to prices) to almost 1.2%, from a record low of 0.1% last July. The yield gap with the German ten-year Bund, considered a safe haven, reached almost 0.8%, a four-year high.
The worry is that Franois Fillon, the centre-right candidate, has fatally damaged his bid for the presidency after allegedly misusing public funds by paying his wife and children large sums for doing very little. "Voters seeking pro-growth reforms this spring will have to look elsewhere if the self-proclaimed Thatcherite's campaign collapses", says The Wall Street Journal.
Fillon's mishap will also embolden the far-right candidate Marine Le Pen, whose economic programme is a toxic mix of protectionism and yet more state spending. More importantly, she wants to reintroduce the franc and hold a referendum on France's EU membership. The departure of a founding member would almost certainly spell the end of the European integration project.
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It may be too soon to panic about "Frexit", however. Polls suggest that Marine Le Pen could well win the first round, but would lose the second to Emmanuel Macron, a former economy minister in the Socialist government who is running as an independent. And Macron's "reformist credentials are not in doubt", as Simon Nixon points out in The Wall Street Journal.
Macron introduced a law in 2015 to deregulate some cosseted professions such as notaries and loosen union restrictions on working hours. The bill, rammed through parliament by decree, was hailed as a "real step in the right direction" by the employers' association. Long-range bus routes were liberalised to boost competition with trains and Sunday shopping became more widespread. While this isn't exactly ground-breaking stuff, it suggests he is at least determined to implement further structural reforms, even though he has yet to spell out in detail what he wants to do. He may also struggle to muster a parliamentary majority given he now leads a grass-roots movement outside the Socialist party.
Panicky investors should also bear in mind that, even if Le Pen becomes president, she would need to secure a 60% majority in parliament for a referendum on EU membership a pretty tall order. That means she could well win and cause a market panic but fail to blow up the European project.
Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.
After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.
His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.
Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.
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