France is enjoying a good crisis. The country’s funding costs are at record lows. But this may not last if new president François Hollande’s policies disappoint markets.
The election of France’s first socialist president in over two decades could have given markets an excuse to pounce. The opposite has happened. As the Greek situation has worsened, French 10-year yields have fallen to their lowest levels since the euro crisis began. Ten-year spreads over Bunds fell roughly 30 basis points this past week, to 110 basis points. Compare that to the peak of the crisis in November last year, when rising contagion drove spreads to a record 180 basis points, suggesting that France could at some point be hit by the contagion wave.
Markets so far have seen the best side of Mr. Hollande. He used the recent euro zone summit to verbally promote a badly needed growth agenda for the single currency, and he has avoided escalating tensions with Germany. In reality he has few concrete results to show for his efforts, but at the very least he has broadened the policy debate.
Read more: Markets responding well to France’s new leader - The Globe and Mail
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