The reemergence of the spectre of EMU fragmentation: More debt and France in the eye of the storm
Sovereign risk
Fecha: septiembre 2024
José Manuel Amor, Camila Figueroa and Javier Pino
SEFO, Spanish and International Economic & Financial Outlook, V. 13 N.º5 (September 2024)
Persistent domestic and global political instability, along with economic uncertainty, have driven volatility in sovereign risk premiums across the EU, with France being particularly affected. While the EU’s flexible fiscal rules offer some relief, underlying fiscal imbalances in several countries, including France, remain unaddressed. For example, France’s fiscal deficit increased to 5.5% of GDP in 2023, while its public debt-to-GDP ratio went from 65% in 2007 to 110% by the end of 2023. highlighting the scale of the problem. Addressing these challenges requires long-term fiscal adjustments to stabilize debt ratios and ensure sustainable fiscal management, especially for France. However, political fragmentation and polarization complicate the implementation of necessary reforms, heightening the likelihood of prolonged market volatility across EU sovereign debt markets.