With eight months to France’s presidential election, French assets are showing
strain. France’s borrowing premium over Germany, a key sovereign-risk gauge, is
nearing its highest level since the 2012 euro-area debt crisis. Stress has
spread to French equities and corporate bonds, leaving French assets lagging
peers. France’s fiscal deficit tops 5% of GDP, borrowing costs are rising and
growth is weak, leaving the economy close to recession. Investors’ central
question is how a successor would address these entrenched fiscal and growth
challenges. In last week’s first presidential debate, far-right frontrunner
Marine Le Pen and far-left Jean-Luc Mélenchon proposed contrasting measures
including higher spending, a lower retirement age, partial cancellation of
government debt and proposals to suspend certain payments to the EU.
