France Faces No Room for Fiscal Mistakes Amid Bond Selloff, Citadel Warns
Market Pressures and Political Challenges for France's Fiscal Policy
By Leigh Thomas and Gabriel Stargardter
France's Fiscal Situation and Market Response
PARIS, Oct 7 (Reuters) - France no longer has any room for mistakes to get its fiscal house in order, and pressure from financial markets should help focus minds in Paris on reining in spending ahead of next year's presidential election, senior Citadel executive Angel Ubide told Reuters.
France has seen its borrowing costs surge in the current global bond rout, prompting a selloff in the euro, as investors worry its fragile public finances risk spilling over to the rest of Europe.
Ubide, head of Economic Research for Fixed Income & Macro at Citadel, which has $76 billion in assets under management, said France doesn't pose a systemic risk to Europe - yet.
Systemic Risk Concerns
"France is very big. If we are discussing a systemic problem with France, we are discussing a systemic problem for Europe. I would hope and expect that we don't get to the point of having that discussion," Ubide told Reuters in an interview.
Political Landscape and Fiscal Discipline
As well as the presidential vote, it is also key that parliamentary elections produce a majority capable of reining in public finances, Ubide said.
Market Signals and Fiscal Responsibility
"So I think the market pressure in that sense is helpful because it's sending a clear signal that you have no room for mistakes - that is the most important thing," he said.
Bond Market Turbulence and Broader Implications
France's bond market turbulence has raised concerns in financial markets that it could trigger a broader fallout hitting other euro zone countries and the euro.
ECB's Position and Bond Yields
ECB policymakers and France's finance minister have so far ruled out any need for the European Central Bank to step in and stabilise the market.
The yield on France's 10-year bonds briefly hit a 24-year high of over 5% last week.
Meanwhile, the euro hit 17-month lows below $1.12 on Monday and tumbled against sterling, the Swiss franc and Japan's yen.
Election and Protests Ramp Up Instability
Political Uncertainty and Voter Sentiment
France's presidential election is approaching against a backdrop of student protests, rising prices and pinched wallets, prompting disgruntled voters to desert mainstream parties in favour of far-right and far-left parties, which are surging ahead in polls.
Le Pen's Fiscal Promises and Economic Skepticism
Marine Le Pen, the far-right frontrunner in the polls, sought on Tuesday to establish her budget credibility, pledging a steep increase in her plans to cut spending if elected.
She said she would target budget savings of €140 billion ($157.6 billion) over the course of a five-year presidency and enshrine deficit reduction in the constitution through a referendum.
However, her proposals have met with scepticism from economists who spoke to Reuters. They questioned whether cuts of that scale could be achieved, especially as she gave few details on whether she plans to stick with a policy for reducing the retirement age for some workers.
Market Uncertainty Over Political Outcomes
"There is still a big unknown, 'Who is the true Marine Le Pen?' We are still learning, and it will take time for the market to develop a view," Ubide said.
Additional Information
($1 = 0.8883 euros)
(Reporting by Leigh Thomas and Gabriel Stargardter; Editing by Susan Fenton)
