EXCLUSIVE LETTER ABBO’S – The fall of Liz Truss, but also of the British pound, sounds like a warning to governments and their fiscal policies.
Whoever I speak to in economic and political circles in recent days, I’ve heard the same numbers over and over again. They are not new, but forced themselves into the whole subconscious. 51.2 billion euros and 270 billion euros. The first corresponds to the debt burden that France will pay in 2022. The second with the amount that France will have to borrow on the markets in 2023.
Nothing new, I said. If not the fall of the government of Liz Truss across the Channel, after a month and a half of chaos. To be sure, British Conservatives are very keen to undermine their credibility.
“Singapore project on the Thames is complete!”, one banker told me with a smile, referring to the Tories’ post-Brexit ambition to raise capital from the world. In fact, even before Liz Truss’ resignation, indications of a loss of the city’s dynamism multiplied. Bloomberg noted at the end of September – who would have believed that! – that the stock market capitalization of the Parisian market was now close to that of London. So much for the good news, seen from France.
But seen from Paris, the British spectacle is primarily a warning. Watching the United Kingdom go through a political, but also a financial storm that brings the country back to the memory of the crises of 1992 (storm on the British pound), 1976 (call to the IMF) or even 1956 (Suez crisis) caused a wave of choc. While the French 10-year yield is gently approaching 3%, the 2023 financing bill, which was just the subject of the first 49.3, is based on an assumption of 2.5% at the end of 2022 and of 2.6% at the end of 2023 – concern is gaining ground.
In France, this situation reinforces the new political positioning of Bruno Le Maire, the self-proclaimed guardian of the budgetary temple. In the debate with the opposition, and perhaps even more so in the internal debates of the majority and the executive, the Minister of Economy and Finance has become Mr 5%: there is no question of deviating from the objective deficit – which is very is high – set in the 2023 PLF. a wider system than the current one, but still focused. On this subject, arbitration, which has been long postponed pending European decisions that will not be taken in time, is imminent. “It will be without me!“, we hear this expression more and more often in the mouth of the minister. A day to refuse a pension reform, without changing the age limit, which would be a lack of ambition; another, to oppose the resumption of the amendments voted by the deputies for the activation of 49.3 and which would go back to Emmanuel Macron’s promises in the tax area. All attempts by the opposition and sometimes by a section of the majority to target the richest, the superprofits or the “big dividendswere in fact postponed.
But I come back to the English lesson. The sequence that led to the British situation completely derailing made an impression when the Bank of England had to come into play. As if London had wanted to give a paroxysmal example of a debate that is currently troubling all decision-makers concerning the coordination between monetary and fiscal policy. In the eurozone, this is a hot topic with an ever-widening gulf between the European Central Bank, which is determined to continue the pace of rate hikes to stifle persistent inflation, and governments that decide through shields and bailouts to light of the energy crisis (listed here by think tank Bruegel).
In the echoes Last Monday, Emmanuel Macron slipped into a sentence that had the effect of a small bomb, especially since it is customary for a politician to refrain from commenting on monetary policy.
(The) inflation was first imported from outside, it is not linked to excess demand. I am concerned to see many experts and certain players in European monetary policy explaining to us that European demand must be destroyed in order to better contain inflation. You have to be very careful. Unlike the United States, we are not in a situation of European overheating
Emmanuel Macron at Les Echos, October 17.
On Wednesday, at the end of a Franco-German Economic and Financial Council (CEFFA), which brought together Bruno Le Maire and his two counterparts Robert Habeck (Economics) and Christian Lindner (Finance), the second focused on the “l» : “Fiscal policy and monetary policy must go hand in hand. We governments should not go against monetary policy or it will fuel inflation again.” In fact, the eurozone currently has enough problems not to add a rift between political and monetary authorities to the fragmentation of national situations in the face of the energy crisis and the budget issue.
The meeting (via videoconference) of the three ministers (“Germany needs two ministers to respond to Bruno Le Maire” joked Christian Lindner) was also interesting to observe, as it was closed to the press shortly after the confirmation of the postponement of the Franco-German Council of Ministers in January, when it would be held the following week. The confirmation of a latent crisis of the Franco-German couple I talked about a week ago in this article.
Figure of the week: €120 million
I underline this because I am having a hard time recovering from it: the strike spreading in the EDF plants, despite the signing of an industry agreement last week, would cost up to 120 million euros per day – you read that right, per day – on EDF. This is the price of the electricity that is not produced by the park and must therefore be bought on the spot market. The amount is huge!
Also read this week
After the reactors. This article tells you in detail about the end of Superphénix, the fast breeder reactor that Lionel Jospin announced would be shutting down in 1997. of the area after the closure, was dissolved without creating a job but after spending half a million euros. What a waste !
Waiting for god. A little desperate: Ariane 6, the future rocket that will notably carry the satellites of the Amazon constellation, is behind schedule and is now expected before the end of 2023.
Before the elections. If you had the slightest doubt about the importance of fuels in politics, read this Washington Post article that shows you, with illuminating images to support you, the perfect correlation between the price of a gallon at the pump and Joe Biden’s popularity rating.
I take this letter to thank you all for your loyalty, and especially those who took the opportunity last week on number 100 of this letter to send me messages of great kindness. I see them as so many encouragements.
See you next week,
And until then, let’s meet at email@example.com