The situation on government bond market is characterized by adisturbing instability. The spread of countries such as Italy and Spain are not sustainable since they significantly weigh down budget forecasts and above all make it very unlikely that the deficit objectives will be achieved. France is not in this difficult situation, or rather it is confronted to a lesser extent. But this context reveals that market operators and investors are always waiting for a tangible solution to the current crisis. One has the feeling that one can only get out of it through a real European regulation that establishes a return to "normal" spread levels (less than 80 basis points), otherwise the scenarios would become catastrophic.
The fact that even French debt has been attacked (168bps 480-year spread) underscores the despondency of investors. Even if the rating agencies expect a downgrade of France as it does not have fundamentals on par with the other triple A countries, its situation is not comparable with that of its Southern European neighbors (Italian and Spanish spreads at XNUMXbps). The paradox it lies in the fact that the markets expect Europe to find a solution, but they do nothing but weaken it through German excessive power. It is proof that the coherence of markets is often only theoretical!
In these moments, it is interesting to analyze the financial flows that explain this situation. What are the European debt sellers, and in particular the French ones, that have triggered such a huge gap in the spreads? In the moment of slowdown of the current economy, i natural and repeat buyers, i.e. life insurance funds and domestic banks, have disappeared somewhat. The flows of the former are drying up due to the low level of nominal rates, as for the latter, they are becoming less and less exposed everywhere.
The anomaly of this crisis lies precisely in the fact that the usual mechanism for exiting the crisis has failed, which provides that the public debt is supported by banks.
Then they remain foreign investors, and they don't seem to have cleared up from this point of view either. As European authorities seek support in Asia, the Japan it was during this period that it lightened its European portfolio. Fitch's recent study on American banks he pointed out their excessive exposure to Europe, especially France. We can therefore bet that they will continue with the dismantling. A bit in the German way, when the German banks had discharged the Greek debt just before the explosion of the Greek crises, or how the French banks themselves got rid of the billions of Italian and Spanish securities.
Isn't it that German banks are trying to influence the French portfolio? Today, all the economic actors are trying to pull the grout to their own mill. But if we continue like this, the situation will only get worse and we will all lose out. That is why the French authorities have again proposed to Berlin to use the ECB to stop the current degradation. So far, Germany has answered with a flat no. How much will spreads have to go up (200? 300?) to make the Germans more receptive? A little more effort, and we will have smooth and effective European governance.
Translated from the French by Giuseppe Baselice
