One government builds, another falls
SGM-FX has covered the run up to the vote of no confidence in Barnier’s infantile French government somewhat comprehensively. Despite this it still feels necessary to highlight that last night this vote concluded and Barnier’s government has collapsed. The Prime Minister is due to submit his resignation to the President this morning. At 91 days his welcome may seem outstayed on the Liz Truss-ometer, but Barnier will become the shortest serving French Prime Minister in France’s current post-war regime.
No Parliamentary elections are able to take place in France until mid 2025 leaving France with the stark reality of no budget and no agenda. The roadmap from here will for President Macron to nominate a new candidate as Prime Minister to form a government. It is unlikely a 2025 budget can be agreed meaning that the 2024 budget should be voted upon to be extended into 2025. The tightening of the purse strings needed to bring France’s annual budget deficit into line will therefore not occur. The fiscal tailwind created by this event is extremely unlikely to counteract the negative impact upon sentiment and therefore spending and investment, hampering French growth prospects.
Once the vote was called the outcome was a certainty meaning that both French bond yields and spreads over German/European comparable paper have held steady. In turn the Euro has remained stable. Crosses including EURUSD and EURGBP have not shifted lower following the overnight vote. In the case of the former currency pair, this is all the more critical given the chaotic headlines produced by the volatile construction of Trump’s forthcoming government. Noisy and public nominations and withdrawals from key government posts by the President elect is keeping US political analysts on the ball. The key battle ground to understand will be how the USA’s relationship will look with its closer trading allies, namely Canada and Mexico.
Discussion and Analysis by Charles Porter
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