Mohamed El-Erian, Allianz‘s Chief Economic Advisor, warned on Wednesday about the growing intersection of political and economic challenges in France following Prime Minister Michel Barnier‘s historic no-confidence ouster, even as Greek bonds achieved parity with French sovereign debt for the first time since the Eurozone crisis.
What Happened: “What we are seeing in France these days is yet another example of messy politics contaminating economics,” El-Erian wrote on X, distinguishing the current situation from Britain’s 2022 “Liz Truss moment” due to France’s Eurozone backing and different global financial context.
The political upheaval comes as Greek 10-year sovereign bonds closed their yield gap against French bonds in late November, trading below 3% – a remarkable turnaround from the peak of the Eurozone crisis when Greek bonds yielded 40 percentage points more than French debt.
Bank of America analyst Athanasios Vamvakidis attributes Greece’s resurgence to fiscal discipline and economic reforms, with the country expecting a primary budget surplus of 2.4% of GDP this year, reported Euronews. Meanwhile, according to Goldman Sachs, France faces mounting pressure over its rising debt-to-GDP ratio, which is projected to reach 118% by 2027.
Why It Matters: Barnier’s removal followed parliamentary opposition to his proposed €60 billion spending-cut package, with National Rally leader Marine Le Pen calling the budget “toxic for the French.”
The political stalemate threatens to complicate France’s fiscal consolidation efforts as Eurostat forecasts French economic growth to slow to 0.8% in 2025, while Greece is projected to grow by 2.3%.
President Emmanuel Macron is expected to name a new prime minister, though the political deadlock in the Assembly will likely persist until new elections can be held in July.
El-Erian noted that while France benefits from Eurozone institutional support, the current situation “will undermine growth and raise borrowing costs.”
Investors can track the market’s response to political turmoil via the iShares MSCI France ETF (NYSE:EWQ), offering focused exposure to the French economy. The ETF’s top holdings feature LVMH Moët Hennessy Louis Vuitton (OTC:LVMHF), TotalEnergies (NYSE:TTE), and Schneider Electric (OTC:SBGSY).
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
