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France could be next to fall after Spain, Portugal

Text by FRANCE 24

Latest update : 2010-12-07

France will be the hit by bond investors after they have finished with Spain and Portugal, says LSE boss Xavier Rolet. But other analysts, and especially the French government, think France's fundamentals are sound.

France will be the next country to come under attack from government bond investors after Portugal and Spain, according to the head of the London Stock Exchange (LSE).

Xavier Rolet warned the UK’s Independent on Sunday: “France’s deficit is much, much higher than anyone realises. My view is that markets are not prepared to finance it unless there is serious structural reform.”

“It won’t be long before bond investors turn to France after they have finished with Portugal and Spain,” added Rolet, who is a French citizen. “No one, not even France, can hide anymore.”

Bond attack

A country is 'attacked' by bond investors when they sell or simply stop buying new bonds, which results in their value falling.

When this happens, the yield, or the return investors expect to get back from their bonds, goes up.

This increase in interest can be so extreme that governments lose their credit rating and, as in the case of Greece and Ireland, need to be bailed out.

Don’t panic

One analyst, however, told FRANCE 24 he did not believe France faced the kind of trouble suffered by Greece and Ireland as a result of ballooning deficits.

Jeremy Batstone-Carr, Director of Private Client Research at London-based stockbroker and investment management company Charles Stanley, was more cautious than the head of the LSE.

“I do not believe a Greek- or Irish-style sovereign debt crisis will happen to France,” he said. “France has the wherewithal to address its debt to GDP ratio.

“But sovereign debt and an overstretched banking sector are intertwined, and much the same could be said of other countries such as the UK and the USA.”

Xavier Rolet’s warning comes as the IMF is putting pressure on the euro zone to increase the size of its €440bn bailout facility, a move that is increasingly unpopular in Germany

‘No risk’

Last week French Budget Minister and government spokesman insisted that there was “no risk” and “no concern” that France might be the next euro zone country to face steeper interest payments on government-issued bonds.

France's deficit is set to hit 7.7% of gross domestic product in 2010.

The government wants to cut this to around 6% by the end of 2011 and from there to move progressively towards the EU limit of 3% by 2013.

Date created : 2010-12-06

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