European Central Bank Vice President Luis de Guindos said on Tuesday that French markets would be “uneasy” if the new French government does not comply with the ECB’s new fiscal rules.
De Guindos told CNBC’s Annette Weisbach that trends in French bond markets last month did not raise concerns that the ECB would need to intervene.
“What we have seen so far is a fairly orderly evolution in the (French) market,” he said in an interview at the ECB Central Banking Forum in Sintra, Portugal.
“We’re seeing a bit of a widening in spreads, but things are under control on that front.”
country premium Borrowing costs compared to Germany Recently, France’s benchmark 10-year government bond yield has risen to its highest level since 2012, rising to 3.3 since President Emmanuel Macron announced snap elections in mid-June. More than %, about a 12-month high.
The far-right National Rally party took the lead in the weekend’s first round of voting, but analysts said the divisions pointed to the possibility of a hung parliament in Sunday’s second round. This was viewed as a favorable fiscal outcome by many investors who were concerned about tax and spending proposals from the far right and far left.
De Guindos’ message echoed one from European Central Bank chief economist Philip Lane two weeks ago, when he June says The sell-off in French bonds is not “disorderly”.
“I think it’s not about monetary policy, it’s about fiscal policy,” DeGuindos told CNBC on Tuesday.
“You know, the reason why markets are uneasy… for any government, not just France, is that fiscal policy is not adapted to the (European Central Bank’s) new fiscal framework,” he continued.
“So I think the key factor here is full respect for the fiscal framework agreed at the beginning of this year.”
this Framework released in March EU member states with public debt ratios exceeding 60% of GDP or deficits exceeding 3% of GDP are required to submit four-year fiscal plans to the European Commission, the EU’s executive agency.
Even under the current pro-business centrist government led by Prime Minister Gabriel Attal, a Macron ally, the commission in June issue a rebuke High budget deficits in France and six other countries. France’s debt-to-GDP ratio was 110% last year.
“We will fully respect the results of any electoral process,” DeGuindos said.
“Let’s see, but … the evolution of the market so far has been pretty ordinary. We haven’t seen any turmoil or frostbite in the market.”
“Even if you look at the market yesterday and today, you know, today, things are a little calmer than they were before.”
Anna Titareva, European economist at UBS, told CNBC’s “Squawk Box Europe” on Tuesday that the market’s view of the first-round election results in France was “somewhat positive.”
“It appears that the risks of a coalition of far-left parties are now priced in. Furthermore, there appears to be some moderation in terms of potential conflict in terms of rhetoric from far-right parties.” Negotiations with the European Commission on the fiscal outlook.
“When we think about ECB (bond market) intervention, they have a variety of tools at their disposal,” she continued, including transmission protection instrument and direct currency transaction.
“But they have been emphasizing that they will only react if the market reaction is disorderly. That is not what we are currently observing. So at the moment, it seems that they have little incentive to participate.”
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