As elections cast doubt on the fiscal outlook, massive debt loads among the largest economies in the world are beginning to unsettle financial markets once more. Following a shock election and concerns over large spending plans, French bonds suffered greatly. The dynamics of US debt are in the spotlight before the presidential election in November.
While a debt crisis is not the most likely scenario, investors are aware of the possibility that loosened purse strings could lead to market stress. Guy Miller, chief market strategist at Zurich Insurance Group, stated that “deficits are back in focus.” “There needs to be more attention placed on not just the debt, but how to generate a growth dynamic – particularly in Europe,” he stated.
An unexpected election served as a harsh wake-up call for investors who had previously ignored France’s collapsing public finances. France is subject to sanctions from the European Union because of a budget deficit that was 5.5% of output last year. When the far right gained ground in the election campaign last month, France’s bond risk premium over Germany momentarily increased to the highest level since the debt crisis of 2012.
In the end, a leftist alliance prevailed, and a hung parliament could constrain the government’s spending plans while simultaneously impeding efforts to fortify France’s finances.
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