The French deficit has skidded in 2023, to 5.5% of gross domestic product (GDP) and the rating agencies are preparing to probably lower France’s rating. But the financial markets pay almost no attention to it. The interest rate on ten-year French bonds is around 3.8%, up slightly in recent weeks but far from the peak of 5% in the fall, proof that there is little concern immediately among investors.
Andrew Balls is well placed to explain this paradox. The man is the investment director for Europe, Asia and emerging markets for Pimco, one of the largest management companies in the world, with around 1.7 trillion euros in assets, specializing in the debt market. In this capacity, it directs the enormous financial flows of its clients (pension funds, institutional investors, etc.). From his point of view, the euro zone has successfully passed the test of the successive shocks of recent years and its twenty member countries, including France, are now reaping the benefits.
“Before Covid, when we thought about the risks of sovereign debt in Europe, we said to ourselves that things seemed to be under control, but that we would have to wait for the next crisis to be sure.he explains. Europe then went through a deep recession [la pandémie de Covid-19] and a war, and its sovereign risk held without problem. It passed this “stress test” and the risk on debts is today quite limited. »
“We only have stagnation”
Let me be clear: Mr Balls is not saying that the European economy is in great shape. It is in complete stagnation. In his recent ” cyclical report “ drawing up his forecasts for the next six months, he expects the Old Continent’s falling away from America to continue. “Given the scale of the energy shock [de 2022-2023], it was thought that Europe would experience a deep recession. In the end, we only have stagnation, which is better. But we have real questions about its growth potential for the future. » He is concerned about the drop in productivity, and notes that the wave of artificial intelligence, which is already causing a “wealth effect” in the United States (creation of start-ups, fundraising, etc.) does not the moment hardly reached Europe.
On the other hand, this gloomy situation has nothing to do with the eurozone crisis of a decade ago. At the time, senior German officials were openly considering Greece defaulting on its debt, the European Central Bank (ECB) was reluctant to intervene and markets panicked.
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