Why France is a warning sign for the markets
The good news about the epic shifts in global bond markets is that they mostly reflect economic fundamentals, not the kinds of panicky swings seen in a crisis. The bad news is that there's a risk the disruptions metastasize into a broader crisis in an era of fractured politics across major democracies. The big picture: Turmoil in the streets this week in France is the latest sign of hazards that…
France and the United Kingdom are experiencing turmoil, reflecting the growing challenges faced by major democracies grappling with fiscal deficits. The bond market is reacting to these issues by raising long-term interest rates, which will increase debt servicing costs for governments. While the market's response so far has been orderly, there is a risk of the situation escalating into a broader crisis, given the fractured political landscape in major democracies.
Kunal Shah, co-CEO of Goldman Sachs International, suggests that while the moves may be rational given current economic conditions, they do not yet indicate a financial stability risk. Policymakers in Europe are prepared to respond if the situation worsens. The European Central Bank, unlike in 2010, has stronger tools to address imbalances between European countries, but it cannot tackle the root cause of governments spending far more than they raise in taxes.
The global nature of the yield surge highlights the shared fiscal challenge across major economies. In France, recent protests highlight the strained relationship between governments and their citizens, while the U.K. faces political disputes over pension adjustments and budgeting practices that stifle long-term planning for businesses.
Written by urgent.news from Axios's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
