France 'Absolutely Not' Facing Liz Truss Moment: Subran

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00:00Is this a Liz Truss moment for France?

00:03No, absolutely not. It's not.

00:05It's not a surprise either.

00:07Unfortunately, we've seen a bit of risks looming.

00:09I was still hopeful.

00:11It's the shortest-serving prime minister in the Fifth Republic in France.

00:14So I think, you know, going too soon, that's what comes to mind right now.

00:19So is it a concern?

00:22I think the concern is what type of budget France is going to get.

00:25I mean, Jean explained the situation.

00:27It's not something where we are in crisis situation.

00:30Of course, it means the adjustment speed for France will be longer.

00:34The uncertainty cost on growth will be higher.

00:37And of course, this is at a moment where Europe needs to get their act together on a series of policies.

00:41So having France being in that, you know, corner where they have, you know,

00:46no government to pass a budget is something that is not helpful, I would say.

00:51But, you know, push come to show we can have a continuation budget.

00:55So it's going to be a provisional budget.

00:56And, yes, we're going to still have 5% deficit next year, 2.5% debt servicing in GDP terms.

01:01It's not catastrophic.

01:02It just means we're dragging along at a moment where we would need to get our house in order much faster.

01:09What would take France, then, from a political crisis to an economic crisis?

01:16You're pretty clear we're not there yet.

01:18And maybe we're not even close to being there.

01:20I mean, for international investors, I think a resignation of President Macron would be something that could form an economic crisis.

01:38And, again, an economic crisis, that would mean an overreaction by market actors on the cost to lend to France.

01:45So a spread may be widening by another 50 or 100 basis points.

01:49That would be something that would consider a crisis.

01:51Why?

01:52Because it would trigger a conversation about what type of tools Europe needs to enact,

01:56especially the TPI by the ECB, or what type of discussion we should have at the European level with giving some slack to France, right?

02:03We are far from there.

02:04But as we know, this is something that happens in the market.

02:08I think another route through which France would be in danger zone would be if for the next two years,

02:15which is when the next presidential election is happening,

02:18we don't have any clarity on the economic policy toolbox and playbook.

02:21And I think that's also something that is possible if we go, for example, for a technocratic government

02:27or a snap election with, as Jean described, an unsure, a hung parliament with a minority government for Assemblément National, right?

02:35That would be something also testing the limits.

02:37Why?

02:38Because Rassemblement National has never been in power, and they are very bad when it comes to economic policies.

02:42So they would have to find a way to accompany themselves with people that have a clue about economics,

02:48which is what other governments have done.

02:50So these two options of the decision tree are rather riskier branches.

02:55All in all, France, again, debt-serving to GB is still 2%.

02:58It's half of Italy or Greece.

03:00So I don't see the issue.

03:01I just see the slow deterioration of our signature if we go this route.

03:06And so it could take a few years, but right now it would be less costly to act, for sure.

03:09So everybody is hoping for a political solution so that we can get on with things that matter.

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