Bond Volatility and Energy Flows

SPEAKER_1 (0:02)

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Tom Keene (0:27)

This is the conversation of the day. Virginie Maisonneuve is so acclaimed with all of her work across investment, finance. Nobody cares. It's about the protest in the street. It's about the fracturing of her France. We're honored she could be with us today.

From World War II, there have been four, five, six uncountable republics. It's not like America. There's an inherent instability. Do you worry about a fracturing of the French Republic?

Virginie Maisonneuve (0:56)

That's a really good question. We're in a situation where budget deficits are pretty high, as you know. And with demographic trends that we're seeing, there's very little rooms to maneuver, which was what was promised, if you want, in terms of pension, in terms of benefits. And this is at the heart of the issue that we're seeing today.

And of course, it has an impact on how voters will vote at the next election.

Tom Keene (1:22)

What is the polarity of Paris with the rest of France now? We know it's extreme. There's really, maybe it's a New York, LA equivalent, but it's different and unique. In this crisis, what is the polarity of Paris with the rest of the nation?

Virginie Maisonneuve (1:37)

So there's always a relatively big gap between the farmland and the city, and Paris is still the very strong center of France. There's been many attempts for many years to decentralize, if you want, economic activity across the country. And I think the key things about the protest that we're seeing now is in retaliation, if you want, to this proposal of a budget.

Spending has to be cut to keep with the rules of the EU, and it means a freeze, or at least a proposed freeze, on salaries for government officials or government employees. That has had a big impact. Of course, teachers, many different people, were already working in overcrowded rooms. That creates tensions that are very hard to reconciliation from a mass standpoint when you look at the budget. And of course, that has an impact on Europe.

Paul Sweeney (2:37)

Of course, right. And I want to talk about France as sort of a bellwether for global stress, especially when you look at the bond market. Because now France's corporate bonds are trading as if they were safer than the government's bonds in France. What does that tell you just overall about sentiment?

Virginie Maisonneuve (2:53)

Well, I think what it means is the perspective on government and the ability of the government to deal with this situation. We've had quite a few governments in the last few years, and really very little, I would say, very little traction in bringing the country together to put the finances together. So when you look at the spread versus boons, for example, we've never seen this really.

If you look at the spread versus the periphery, remember the problems used to be Greece, Italy and Spain and especially Greece, right? And this is the world in reverse, if you want. But it is, in my view, the result of 15 years, at least, of that path that has really led us where we are now.

Paul Sweeney (3:44)

Is this a France issue or is it a greater issue that could sort of start to envelop the Greases and the Spains?

Virginie Maisonneuve (3:51)

Well, I think if you look at the transmission mechanism, you have several. Number one, how does ECB rule, if you want, in this world? Because France and Germany were always the core, right?

When you have two very different trajectory, what do you do? The second is the transmission through banks, because banks own a lot of French debt. How is that working? Then impact on the euro, as you know, the euro has been weak year to date, minus 4% versus the dollar. That has an impact on imported energy costs, which are fueling inflation, which have led to increase in rates. So this is how we could look at the map of how the impact of France can propagate through Europe.

Tom Keene (4:32)

Is there an analog to Sweden in that there was a liberality and socialism in Sweden for decades, and then they shifted conservative? Can France do the same thing?

Virginie Maisonneuve (4:44)

It's hard for me to compare it to Sweden, but what we know is the trend towards populism and with the election coming in May, April and May 27 and Marine Le Pen having such a strong support, is the voice of discontent from a country that hasn't found its routing in fiscal discipline.