00:00Renaud Foucault is Senior Economics Lecturer at Lancaster University.
00:04Great to have you on Global Business again.
00:06Look, they've kicked the can down the road with the budget vote.
00:10How ominous is it that they can't even get to that vote because there's just so much to be debated?
00:16That's exactly the way Le Cornu, the Prime Minister, got into power.
00:20He managed to get into power and to stay in the job by promising to do nothing.
00:24And that's because it doesn't have a majority.
00:26It doesn't have a majority and none of the opposition is actually interested in tackling the problem.
00:33So the Social Democrats said, we won the election, you didn't give us the Prime Minister, we're sulking.
00:38And the National Rally, Marine Le Pen, she doesn't want to do anything because she pretends there is no problem
00:43in the first place.
00:44So here he is trying to cut spending with no particular support and also himself not particularly politically relevant
00:52because he's not running for president and Macron is not running again next time.
00:56Well, our correspondent just gave a long list of places where people want to see more money from schools, from
01:03farmers.
01:04But cut spending and the streets erupt.
01:06Keep borrowing and the markets will punish you.
01:10So which risk should the government take?
01:13The government has one major problem and is very well identified, is that to cut the deficit of France,
01:20you need to touch the biggest part of the spending, which is 25% of the budget, pensions.
01:26So pensions in France for the boomer generation are very generous.
01:31And several governments, including Francois Bayrou, have tried to cut simply the highest one.
01:35People receive in state pension 3 or 4,000 euros a month.
01:38But those have been impossible simply because the population in France is aging.
01:43So what should France do?
01:44France should find someone who has that kind of courage.
01:47It's not going to be Le Pen because she pretends it's not a problem.
01:50It's not going to be Mélenchon, same thing.
01:52And it's not going to be a centrist right now.
01:54So I think at the moment the only person who can convince France is the market
01:57and the fact that there will be more and more pressure on the cost of borrowing.
02:01So, look, Greece was small enough to rescue.
02:04France is the eurozone's second biggest economy.
02:07Would the European Central Bank step in to save it?
02:10And could it?
02:12There is no other possibility.
02:14This is the mandate following the update of Mario Draghi.
02:18Whatever it takes, France will be saved.
02:21And if you look at the interest rate, we're talking about 4%, 5%.
02:25We're still very, very far away from the 12%, 14% you had at the time of the sovereign crisis.
02:30And that's precisely because everyone expects the European Central Bank to step in.
02:35The question is at what conditions we step in.
02:38The European Commission cannot just throw away billions because perhaps you can save France once.
02:42But if they don't learn a lesson, it means that everyone else, Italy, Germany,
02:46even right now is also in a difficult situation,
02:49will just find massive deficits until the eurozone is entirely in danger.
02:52So, yes, the ECB will step in to save France, but not at any cost.
02:57And, again, it's perhaps the only way France can reform its booming pension problem.
03:02I'm looking ahead to the end of the week when Moody's is going to review France's credit rating.
03:08Would a downgrade change anything, or have the markets already made up their minds?
03:13I don't think it would change a lot because the rating of France is actually pretty good.
03:17If you look at the letters, it's A, A, A everywhere,
03:19and perhaps sometimes downward trajectory.
03:21But the cost of borrowing is much higher than that already.
03:25So the markets are much more cautious about France than the current rating agency rating.
03:31So France's debt remains cheaper than, for instance, the United Kingdom.
03:35But it is right now in a dire situation.
03:38The cost of servicing the debt remains manageable.
03:41It's been higher in the past.
03:42But the trajectory is very worrying, whatever rating agency says at the end of the week.
03:47I know what you're thinking.
03:49A lot of viewers are thinking, look, the presidential election is six months away.
03:53Are investors now betting on what comes after Macron rather than on this budget?
04:00They are absolutely, I think, looking at the future because even this budget,
04:04the prime minister Le Corneau said, it is irreversible.
04:07It's making it in a way that whoever comes in six months can change it.
04:11What is, I think, particularly worrying is that, first, the streets doesn't seem to care about that.
04:16People are willing to burn the country despite the fact that in six months they can actually change who is
04:20managing them.
04:21And none of the front runners for the election is actually willing to talk about that.
04:27Marine Le Pen, if anything, she wants to lower the pension age.
04:30And if you look at the budget, the fully costed budget she comes up with, it's all fairy tales.
04:35There's absolutely no plan for that.
04:37So investors are worried about that.
04:39And I think they will look very carefully at who would be governing with, for instance, Le Pen.
04:44Will she be in some form of coalition with more reasonable politicians who care about the budget?
04:49Or will she go all in?
04:51If Giorgia Mileni, for instance, in Italy, is the model, you would expect something more reasonable.
04:55But it's absolutely not clear right now.
04:58All right.
04:58It's fascinating stuff.
04:59I know we'll be continuing with this conversation soon.
05:01Renaud Foucault, thank you very much.
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