The unanimous rejection of France's budget by the National Assembly has intensified fears of a sovereign default, putting the Euro under pressure and testing the limits of potential ECB intervention.
The National Assembly unanimously rejected the budget on Wednesday evening, the deficit stands at 5.1% of GDP, debt exceeds 115% of GDP, and Fitch cut France's outlook to negative last Friday. Rising default fears should widen French risk premiums, pushing the benchmark yield higher. The possibility of an ECB bailout is the main offset, but that would burden Germany and is far from certain.
With no approved budget, a 5.1% deficit and debt over 115% of GDP, markets fear France may struggle to service its debt, so investors demand a higher yield to hold French bonds.
The article states a bailout from the European Central Bank is the only means of preventing a default, but it would place an immense burden on Germany and hit German savers, making it politically very difficult.
A French default would undermine international confidence in the Euro, and the article argues the Euro's integrity is the most pressing issue for the EU's coherence. Budget rejection, a 5.1% deficit and the Fitch negative outlook all feed that risk. However, no concrete default has occurred, and talk of an ECB bailout offers a partial backstop, limiting the downside.
Permitting a country of France's magnitude to default would undermine international confidence in the euro, according to the article, so deepening French fiscal turmoil weighs on the currency.
France's National Assembly unanimously rejected the government's budget, exacerbating concerns over a 5.1% deficit and debt levels exceeding 115% of GDP. With Fitch recently downgrading the nation's outlook to negative, markets are bracing for potential sovereign default risks that threaten the stability of the Eurozone.
With no approved budget, a 5.1% deficit and debt over 115% of GDP, markets fear France may struggle to service its debt, so investors demand a higher yield to hold French bonds.
Permitting a country of France's magnitude to default would undermine international confidence in the euro, so deepening French fiscal turmoil weighs on the currency.