According to the China Merchants Macro Research Report, the continued fermentation of French fiscal risk is the result of a combination of internal balance imbalances, insufficient endogenous economic motivation, difficult compromises in political procedures, and external inflationary shocks. 1) The rigidity of payment-side benefits and the high dependence of the economy on government investment make it difficult to reduce public spending; while weak economic growth, stagnant productivity, and weakening industrial competitiveness, the tax base continues to shrink, and the income and expenditure gap shows a structural widening trend. 2) As a result of partisan games, budget and social security rectification procedures were frequently blocked, and the seriousness of fiscal discipline was substantially weakened. 3) Disruptions in the energy supply chain caused by geopolitical events such as the Russian-Ukrainian conflict have boosted the center of inflation and risk-free interest rates, broken the space for reliance on extremely low interest rates to smooth debt under low inflation, and became a key catalyst for the acceleration of the outbreak of high debt pressure. 4) The 2027 fiscal year budget sought to reduce welfare and government employee spending and increase taxes. It touched on the interests of many parties and became a trigger for recent political and social unrest in France. France's fiscal problems are also the epitome of common contradictions in the Eurozone. Rigid welfare spending, declining industrial competitiveness, fiscal driven growth, upward pressure on inflation, and rapid rise in debt and interest rates are reflected at the Eurozone level. Under the negative cycle of slow fiscal consolidation and rising debt costs, in the medium term, the upward trend in French and Eurozone treasury bond yields has not yet reached its end.
Zhitongcaijing · 1d ago
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According to the China Merchants Macro Research Report, the continued fermentation of French fiscal risk is the result of a combination of internal balance imbalances, insufficient endogenous economic motivation, difficult compromises in political procedures, and external inflationary shocks. 1) The rigidity of payment-side benefits and the high dependence of the economy on government investment make it difficult to reduce public spending; while weak economic growth, stagnant productivity, and weakening industrial competitiveness, the tax base continues to shrink, and the income and expenditure gap shows a structural widening trend. 2) As a result of partisan games, budget and social security rectification procedures were frequently blocked, and the seriousness of fiscal discipline was substantially weakened. 3) Disruptions in the energy supply chain caused by geopolitical events such as the Russian-Ukrainian conflict have boosted the center of inflation and risk-free interest rates, broken the space for reliance on extremely low interest rates to smooth debt under low inflation, and became a key catalyst for the acceleration of the outbreak of high debt pressure. 4) The 2027 fiscal year budget sought to reduce welfare and government employee spending and increase taxes. It touched on the interests of many parties and became a trigger for recent political and social unrest in France. France's fiscal problems are also the epitome of common contradictions in the Eurozone. Rigid welfare spending, declining industrial competitiveness, fiscal driven growth, upward pressure on inflation, and rapid rise in debt and interest rates are reflected at the Eurozone level. Under the negative cycle of slow fiscal consolidation and rising debt costs, in the medium term, the upward trend in French and Eurozone treasury bond yields has not yet reached its end.
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