The French Political Crisis That's Turning Into a Debt Crisis

Shahin Vallée (0:02)

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Joe Weisenthal (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:23)

And I'm Tracy Alloway.

Joe Weisenthal (0:24)

Tracy, I don't know about you, but I don't think we need another Euro crisis right now. We have a lot going on on our plate these days. There's a bunch of stuff to be anxious about, a lot of moving things. The last thing we need is to be talking about European bond spreads yet again.

Tracy Alloway (0:42)

And yet, and yet here we are.

Joe Weisenthal (0:43)

Well, we have no choice, right? It's right there.

Tracy Alloway (0:45)

Well, the other thing I was thinking, so the first Eurozone crisis was sort of, I guess, 2011 to 2015, 2016 I can't decide if that feels like it was ages ago or just yesterday.

Joe Weisenthal (1:00)

I would go with ages ago. I mean, there's so much that's happened since then. And it all seems like not only does it seem like a long time ago, sort of in clock time and how much has happened, seems a little quaint in the sense of like, okay, there was the spreads and Greece, etc. Then it was kind of solvable. Margot Draghi came out and said whatever it takes, and that they were there to close spreads and stuff. And then it more or less went away. There were some referendums and stuff like that. But like, it was a tractable problem. They did ultimately fix it compared to some of the big sort of seismic questions that we seem to be dealing with today.

Tracy Alloway (1:35)

It got fixed. And if you look at Greek bond yields now, which were the epicenter of the original Eurozone crisis, I mean, they have recovered enormously. And now the key difference, this is a sort of classic history, doesn't repeat, but maybe it does rhyme thing. The country or the Eurozone member that everyone is worried about now is one that was viewed as relatively strong, just 15 years ago, and that is France. French bonds no longer the goat. Did you get that? Oh, come on.

Goat, G-O-A-T.

Joe Weisenthal (2:09)

Yeah, that's good, like oats.

Tracy Alloway (2:11)

Okay, let me do something easier. French bond yields are out of control. There we go.

Joe Weisenthal (2:15)

Oh, that's a good one. That I definitely get.

Tracy Alloway (2:17)

The good thing about it being France is that you have a lot more opportunities to make puns.

Joe Weisenthal (2:22)

That's right, we should have plenty of opportunities. I used to speak French, by the way, and then I forgot it. The first Euro crisis was about peripheral Europe.

Greece was seen as the worst, but Cyprus also had a very rough time, and Italy, and Spain, etc. Portugal had some dicey moments, etc. This is much different, and as you're right, the country that everyone is homed in on is France right now. Core Europe, always perceived during the first Euro crisis a little bit weaker than Germany, which is core core, but still by and large, one of the relatively safer ones.

It's also not as straightforwardly about debt. There are debt concerns, there are deficit concerns, but also there are some deep political concerns. We're going to talk about that. But I think a big, just simple part of the story is when people look at the election that's coming up in 2027, they do not see much prospect for a sort of centrist, Macron-esque type of candidate. I think they're worried about who's going to be running the country in a few months.

Tracy Alloway (3:28)

This is always my question when it comes to debt crises, because often you see that the fiscal fundamentals, they're kind of the same for ages and ages and ages. I don't think France has run a budget surplus for the entirety of our lives. This has been the French debt story for ages, so I'm always very curious what the actual catalyst is for people to start getting worried about these things and for yields to actually start shooting up.

Joe Weisenthal (3:52)

Totally. Well, anyway, even though we would probably, we do not need another euro crisis right now, we have no choice. We have to talk about what's going on, and we really do have the perfect guest. We're going to be speaking with Shahin Vallée. He's a senior fellow at the German Council on Foreign Relations. He's an advisor to institutional investors. He once was an advisor to Macron when he was an economy minister.

This was in 2014, 2015 Even advised him on his campaign for a while in 2016 before parting ways before the actual vote in 2017 So someone who really, like I said, the perfect guest. So Shahin, thank you so much for coming on the podcast.