The head of the French central bank has warned that the country risks being “strangled by interest rates” if it does not act to clean up its public finances. Emmanuel Moulin, the governor of the Banque de France, told the FT that the Eurozone’s second-largest economy could win back investor confidence despite the “serious and worrying” moves on sovereign debt markets in recent days.
“France is not Greece during the Eurozone crisis,” Moulin said. “If it can pass a budget this year to reduce spending and narrow the deficit as the government has proposed, then markets will be reassured by this concrete step of fiscal consolidation.” He added: “If we don’t act, there is indeed a risk of being gradually strangled by rising interest rates. We have to remain masters of our own destiny.”
Last week, the French government proposed a budget with €43bn in spending cuts and tax rises to pare back a deficit forecast at 5.4 per cent. French 10-year bond yields rose close to 5 per cent on Friday before falling to 4.86 per cent. Spreads with German bonds briefly climbed above 1.5 percentage points. Moulin said the “safety net lies closer to home” in France’s ability to repair public finances.
Source: Financial Times Markets · Summarized by HeadlinesBriefing