From the Telegraph:
There will be no speculative attack against French bonds on Monday morning because François Hollande has been elected president, the first socialist to take the Élysée since the Mitterrand debacle of 1981.
The phantom army waiting to pounce is the cynical invention of the Sarkozy campaign. Any fears of a Leftist lurch have been in the price for weeks.
What is true is that the CAC-40 index of French stocks has underperformed Germany’s DAX by 20pc since last August, an ominous divergence for two countries yoked so tightly together. The yield spread of German 10-year Bunds over French OAT bonds has jumped 90 basis points.
This parting of the ways pre-dates the "Hollande scare". It goes beyond downgrade jitters, or fears of contagion from $710bn of French bank exposure to Italy, Spain, Greece, Ireland, and Portugal (IMF data). It reflects a gut feeling in global markets that France is sliding into deep trouble, clinging to a ruinously expensive social model in a Teutonic monetary union and a Chinese trading world.
French economists say the moment of danger will come later this summer - whoever is elected - as the full force of Europe’s contraction crisis hits France.
“They absolutely must cut public spending and control the debt,” said Marc Touati from Global Equities in Paris. “It will soon be clear that we are in deep recession. If they don’t act fast, interest rates will shoot up and we will have a catastrophe by September,” he said.
Fiscal tightening a l’outrance across Euroland is a grave policy error, he said, but ‘AA’ France nevertheless has to deal with reality.
The country lacks the credibility to go for growth alone under the constraints of monetary union. It is trapped....MORE
