Chapter 1: What are the current risks facing France's fiscal outlook?
Hello and welcome. This is The Michelle Hussein Show. I'm Michelle Hussein. I speak with people like Elon Musk. I think I've done enough.
Chapter 2: How does political uncertainty affect French assets?
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You certainly ask interesting questions.
Chapter 3: What impact could the pension reform suspension have on investors?
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The outgoing Prime Minister, Sébastien Lacan, who is meeting the Socialist Party this morning, then the Greens and the Communist Party, as well as he's trying to discuss or build support for his budget plans. As we count down to that deadline, though, I want to get the perspective of Christopher Dembeck, Senior Investment Manager at Picday Asset Management. Chris, great to see you.
Thanks very much for joining us this morning.
Chapter 4: What are the worst-case scenarios for the French economy?
From your point of view, I mean, how do you view this uncertainty in terms of framing for French assets?
Well, I don't see it as a big risk. I think over the past two years we have seen that the French economy is not performing quite well, mostly due to the political situation. We all expect uncertainty, political uncertainty will last at least until the next presidential election, so we have until 2027. I'm very pessimistic regarding the outcome of the negotiation tonight.
Chapter 5: How do different political parties influence investor confidence?
I have some contacts in the government and apparently the bet is that we will have a new election. in November potentially, but even if this happens, I don't think it will solve the situation. So for most investors, or even when you talk with companies, anyone knows that the situation won't get better anytime soon. So we are getting used to this.
I had recently talks with French investors that own French debt in quite large quantity.
Chapter 6: What are the implications of high taxation on the French economy?
What they told me is they are not afraid at all because basically over the past two years they have reduced the exposure to French assets. So everything has already happened and I guess I'm not the only one pessimistic but most of the French business community is nowadays.
So is there a worst-case scenario then if things play out? Does having the Socialist Party in a government now and not elections, is that better than having elections from an investor point of view? How do you look at the various scenarios?
Chapter 7: How does the bond market react to potential policy changes?
Well, from an investor point of view, I think the best is to have a new election or a technical government. We are all quite afraid if we have a socialist or far-left government, obviously. I think one of the biggest issues with the left is that they consider the French economy is in quite good shape. But as a matter of fact, if you look at economic activity, we might be around 0.5% this year.
And they want to increase taxation.
Chapter 8: What strategies should investors consider in the current climate?
You know, you have all the discussion how to increase much more taxation. I don't think this is the right way to deal with the situation. But if we have a left government, we are without obvious support from the far left. I think it's not good for the economy. So most of the investors are quite afraid. And taxation level is already quite high in France.
One of the key comments we've been watching this morning is from former Prime Minister Elizabeth Bond, someone who brought the pension reforms through Parliament when she was Prime Minister. She's now saying that she could be in favour of suspending that reform. I mean, what's your view on that proposal?
Well, it's a complete nonsense. Nowadays, we have in terms of public deficit, it will be around 5.4% of GDP, which is one of the worst in the European Union. So let's say that you suspend the reform. You need to find, according to my assessment, you need to find every year between 20 and 30 billion euros more. So where do you find it? I mean, we are unable even to reduce the deficit at all.
So if you suspend the reform only for political purpose, the issue is that at the end of the day, your deficit will keep increasing. So, yes, clearly the investors or you don't have speculative attack against the French debt. But right now, we don't know if it will happen. You know, in the bond market, everything can fall down very fast. So, nowadays, it's very quiet.
I expect it will remain like that. But let's say that we suspend the pension reform. No one knows what's going to happen on the bond market. So you could have speculative attacks against French assets. So that's why I think it's really not wise.
What sort of move would that mean in terms of yields or the spread with Germany?
Well, let's say we're around, for the 10-year bond market, for the French government bonds, we're around 3.5%, 3.7%, which might be the top. If we jump around 4%, it will be already... quite challenging. I mean, we have seen it for Greece, and I don't compare France with Greece, but from one moment to another, almost overnight, everything can fall down.
So that's why I think we need to be very careful. And obviously, foreign investors, they don't look at all the reforms that France is implementing. But we all know that we need to be very wise regarding the pension reform. So we need to be careful. And if we suspend it, Well, let's be very transparent. It's not a suspension.
It means that we will just cancel the reform, so we will have, sooner or later, a new debate about it. So it's not the right solution to deal with the situation. And I think, from a political point of view, it was not already enough to do this reform, so we cannot get back to this. Is suspending the pension reform the biggest risk to the fiscal outlook now? Yes, I mean...
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