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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Well, look, let's start with Leonel's latest piece about this,

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Speaker 2: talking about Sebastiana Lecornu supposed to be Emmanuel Macro's last

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Speaker 2: chance man to keep his presidency on the rails through

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Speaker 2: twenty twenty seven. Is Sebastian Lecornuo going to be able

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Speaker 2: to do anything in the next forty eight hours that

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Speaker 2: he hasn't been able to do over the past monthly

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Speaker 2: and now?

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Speaker 1: Well, look, the new rule of French politics is it's

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Speaker 1: not over till it's over, but it feels over, it's

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Speaker 1: nearly over. The reason why I said that is because

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Speaker 1: I think that snap parliamentary elections, which has been something

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Speaker 1: that mac Colon's been trying to avoid ever since you

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Speaker 1: called the last one last year, that for me has

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Speaker 1: dramatically ramped up in probability, so that to meet us

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Speaker 1: like a very likely option. So what Mcorn's done is

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Speaker 1: basically put that on the table and said, okay, this

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Speaker 1: is basically happening, and you now have forty eight hours

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Speaker 1: to avoid that.

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Speaker 3: Okay.

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Speaker 1: So in other words, the divide mine of Parliament used

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Speaker 1: to be pro anti Macorn, willing to work with him

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Speaker 1: or not now Mackcorn wants wants the parliament to be

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Speaker 1: pro or anti snap elections. So basically all the parties

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Speaker 1: around Mackcorn, especially the center left, have to basically decide

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Speaker 1: are they going to risk their own jobs by letting

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Speaker 1: parliamentary elections happen, or are they going to have one last,

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Speaker 1: last last attempt at a coalition. But frankly, all of

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Speaker 1: the energy, all of the kind of gravity I feel,

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Speaker 1: is slipping away.

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Speaker 4: Our buyou, Marcus, let me bring you in here, because

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Speaker 4: we've got the oats bunch spread now eighty six basis points.

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Speaker 4: And what analysts keep telling me is this isn't a

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Speaker 4: crisis yet. So how much would it have to widen

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Speaker 4: for this actually to be considered a crisis in the

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Speaker 4: bond market?

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Speaker 3: A sharper move above one hundred would will concentrate some

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Speaker 3: some people for sure. You know, the point here is

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Speaker 3: that the ECB has some reserve weapons if it needs

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Speaker 3: to transmission for tect and incident, which has never been

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Speaker 3: tested and won't be under these circumstances. So you know,

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Speaker 3: France is sort of on its own here, But of

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Speaker 3: course it's not because we've seen over over all these

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Speaker 3: various different blips. You can go back to the snap

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Speaker 3: election last year, last sort of June, that really the

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Speaker 3: cavalry gets you know, the wagons get circled and Europe

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Speaker 3: comes into at least soften the blows. So yes, the

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Speaker 3: ECB no longer in theory is doing you know, quantitated buying.

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Speaker 3: It's slightly letting some passive aggressive excuse me, my pun

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Speaker 3: you know, drift off. But it's not there to actively

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Speaker 3: step in and bail out France. But if you look

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Speaker 3: at the yields versus Italy, they've not ever so slightly above.

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Speaker 3: But this is this is micro, real small stuff at

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Speaker 3: the moment, it's just that why buy France? That's your answer.

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Speaker 3: You're not getting any new money in if in doubt

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Speaker 3: you're going to you know, if a bomb matures or

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Speaker 3: you've got a better opportion, you're going to slide out

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Speaker 3: of France. And that's where it's a slow gradual.

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Speaker 2: Liel I mean on that question of why by France.

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Speaker 2: The conversation that we've had with Jean del Bartrom Blueberg

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Speaker 2: Economics and plenty of others over the past couple of

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Speaker 2: days has been this isn't a fiscal crisis yet, This

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Speaker 2: is a political crisis, and realistically nothing's really changed in

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Speaker 2: the past, probably since Vonso Beru, perhaps since Michelle Barney,

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Speaker 2: and nothing's really changed either. They'll figure it out in

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Speaker 2: the end. What changes in that dynamic? Where does this

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Speaker 2: Where do we get to the end of the road

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Speaker 2: of sort of the gallic shrug.

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Speaker 1: Well, I think, as Marcus was hinting, you know, I've

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Speaker 1: called France look big short, right. It is a big

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Speaker 1: short on a relative basis because the political crisis is

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Speaker 1: unfolding very slowly and everyone can see what's happening, and

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Speaker 1: you can and you can model it out longer term.

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Speaker 1: I think this is a political risk story in that

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Speaker 1: an election changes a lot, and Marie Leupenn and her

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Speaker 1: number two, Sean Don Baldella, are the politicians to beat.

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Speaker 1: Now the two big questions that the two planks of

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Speaker 1: Macaul's legacy so far have been stable tax policy and

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Speaker 1: an economic policy in France that is predictable, and pension

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Speaker 1: reform and a general reform agenda. Those two things have

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Speaker 1: been rewarded by investors over the past decade. Those two

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Speaker 1: things are starting to crack because, as we've discussed, all

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Speaker 1: the parties around him, especially on the far left on

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Speaker 1: the far right want to brush those away. They do

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Speaker 1: not want stable taxation, they want more budget freebies, and

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Speaker 1: they want to roll back pension reform. Those are the

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Speaker 1: things that I think really could derail the French story

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Speaker 1: even further, because then you get back into the old France,

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Speaker 1: the pre macroorn France, but with a lot more debt

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Speaker 1: and a lot worse budget deficit, which I think spooks

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Speaker 1: European partners a bit more.

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Speaker 2: Just on the politics, two of Macron's closest allies have

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Speaker 2: started to disown him, essentially Edward Philip, who okay had

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Speaker 2: gone and set up his own shop, but was still

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Speaker 2: a friend to a man your Macron, Gabriel Latal, the

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Speaker 2: head of Macron's own party, saying on television last night

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Speaker 2: she doesn't understand the president's decisions anymore. Is everyone now

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Speaker 2: just positioning themselves with the next set of elections and

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Speaker 2: trying to diss them someselves for Macra.

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Speaker 1: Totally totally, and that's completely logical, and backhor himself betrayed

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Speaker 1: his predecessor, fran Solon, his father figure. This is the

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Speaker 1: rule of French politics. I think what slightly new, I

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Speaker 1: guess is that edwar Philippe been calling for a new

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Speaker 1: presidential election, is really willing to get out there and

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Speaker 1: say let's make history again. It's a kind of daunting proposition.

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Speaker 1: I think he's now concerned that Marie Lepenn is the

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Speaker 1: politician to be even in a presidential election. Edwar Philippe

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Speaker 1: had been groomed as the kind of potential heir of Macon.

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Speaker 1: I think polls are quite alarming in the sense that

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Speaker 1: they're showing, whether it's La Penn or her number two Bardella,

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Speaker 1: they're really comfortably in the lead for a presidential election.

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Speaker 1: So you can see there's a lot more panic, there's

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Speaker 1: a lot more fabrility. People are willing to push the

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Speaker 1: boat out a little more in terms of radical proposals,

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Speaker 1: and I think a macun resignation would be a huge

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Speaker 1: bombshell and I think definitely pushed the spread two levels

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Speaker 1: that Marcus was flagging.

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Speaker 4: Marcus, what does the market think of the far right

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Speaker 4: in France?

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Speaker 3: Well, I think in essence it's it's one of these misnowners,

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Speaker 3: is that the media portrays these you know, La Penn

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Speaker 3: and her crews as far right, but in practice that

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Speaker 3: they're very far left. In socialistic terms as an economic

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Speaker 3: point of view, leaving some of the politics out of it.

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Speaker 3: This would be no, maybe not quite as sort of

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Speaker 3: Jean Luke Meler chanp you know, cryptocommunists, but it's pretty

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Speaker 3: close to it. And that would be you know, as

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Speaker 3: lean I was very carefully pointed out on the various

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Speaker 3: different flagships of the macaron era would be thrown out

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Speaker 3: where we would be talking, you know, it would be

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Speaker 3: very I'm sure friendly towards a wealth tax and indeed,

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Speaker 3: of course running back that that pension reform which has

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Speaker 3: been so so expensive to get it through and and

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Speaker 3: so you know, important pivotal I think for how the

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Speaker 3: markets view French debt. So this really is this tactic

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Speaker 3: of of Macaroni again is with this snap election last

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Speaker 3: year and again threatening elections, it's to try and scare

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Speaker 3: the National Assembly into doing what he wants. Let's hope

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Speaker 3: that that there's something comes out this which is sensible

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Speaker 3: and a government can be formed. I mean, if nothing happens,

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Speaker 3: if then stands water, actually the budget deficit will improve.

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Speaker 3: But the question really is is that where it's twenty

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Speaker 3: twenty seven and the president's collection all before that, if

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Speaker 3: we do get either a hard left or indeed the

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Speaker 3: the pen socialism version, that the France is going to

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Speaker 3: be in a very different, painful world. Mostly the market

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Speaker 3: expects it's not to happen, and at the moment that's

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Speaker 3: why we're only inching slightly high.

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Speaker 2: Can we put to bed comparisons to the Liz trus

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Speaker 2: era when we think about the situation looking at France

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Speaker 2: todaily now.

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Speaker 1: Well, I think Liz trusts and breaksit are kind of

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Speaker 1: useful barometers of what happens when a country sort of

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Speaker 1: tests its reputation and long held perceptions from the market. Basically,

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Speaker 1: I think, as Marcus has said, the ECB is there,

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Speaker 1: the euro is there, Okay, France is too big to fail.

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Speaker 1: So I think that there will be a question of okay,

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Speaker 1: if there's a staring match between Frankfurt and Berlin and Paris,

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Speaker 1: who's going to move first? But I think trust is

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Speaker 1: frankly a useful reminder not to take things too far.

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Speaker 1: And I am concerned that if the politics gets more

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Speaker 1: radical and le Penn becomes a little less mainstream and

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Speaker 1: her number two decides to go a bit more radical

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Speaker 1: as well on issues like pensions and taxation, you could

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Speaker 1: get a much worse economic situation over the next few years,

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Speaker 1: and you could end up with something approaching a trust moment,

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Speaker 1: even if it's not exactly the same. So I don't

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Speaker 1: think you could put it entirely to bed Marcus.

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Speaker 4: Is the other ingredient for this to turn into a

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Speaker 4: trust situation that there needs to be a structural idiosyncrasy

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Speaker 4: in the French bond market like we had with LDI

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Speaker 4: in the UK.

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Speaker 3: Good question, No, I mean there is something you know

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Speaker 3: going on at the moment in Holland and their pension system,

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Speaker 3: but not so much in France, where the breakdown comes

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Speaker 3: is used to be called bund plus, whereby particularly Japanese

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Speaker 3: investors would happily buy French debt, which is, you know,

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Speaker 3: larger than even the Italian in scale, believing they were

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Speaker 3: getting the equivalent of of you know, bunt security of

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Speaker 3: German sort of type stuff, but with an extra spread.

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Speaker 3: That trade, as I said, no longer happens. That's where

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Speaker 3: you get the sort of you know, no longer are

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Speaker 3: interested in France, You avoid France. It's not much you

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Speaker 3: actively sell, you just don't put any more money. And

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Speaker 3: when stuff matures you don't reinvest it, and that is

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Speaker 3: you know, I think where we have a situation if

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Speaker 3: we do get France downgraded by a second or third

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Speaker 3: rating agency. We've obviously seen Fitch, but we've of course

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Speaker 3: in the next two or three months leading up into

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Speaker 3: the end of the year. And also they have this

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Speaker 3: excess definite procedure they have to get through Brussels that

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Speaker 3: you might see that some of the index bond funds

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Speaker 3: have to start selling because France is no longer sufficiently

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Speaker 3: rated double A and slips down. So that's one one

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Speaker 3: potential thing, but that again will be very much a

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Speaker 3: slow burn. I think we'll see that coming from quite

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Speaker 3: a long while way away.

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Speaker 2: Yeah, can you just give us a sense to wrap

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Speaker 2: up this conversation of where the French public are in

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Speaker 2: all of this as well? I do get the impression

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Speaker 2: from the limits of conversations I have everyone's just a

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Speaker 2: bit sick of us. Is that a fair assessment?

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Speaker 3: Yeah?

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Speaker 1: Sick, tired, disgusted, fed up, whatever you want, whatever adjective

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Speaker 1: you want. The thing is that there's always there's always

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Speaker 1: a there's two potential outcomes, right, Either France becomes a

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Speaker 1: country almost like the Netherlands, or other countries where the

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Speaker 1: politics is crazy, but somehow people carry on, businesses carry on,

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Speaker 1: the economy carries on. We've seen a bit of that,

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Speaker 1: or my concern is that we get much much worse

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Speaker 1: to come. There seems to be a nihilistic, almost nihilistic

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Speaker 1: view in society, huge distrust of politicians, loss of faith

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Speaker 1: in policy discussed almost with the political class, and that

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Speaker 1: I think is very dangerous for the future.

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Speaker 2: And just in the short term. What do you think

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Speaker 2: is going to happen this week?

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Speaker 1: I think mc horn is going to keep doing these

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Speaker 1: kind of hail Mary Moose, But as I said, I

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Speaker 1: do think parliamentary elections are the most likely outcome, if

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Speaker 1: not the end of this year, in the studd of

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Speaker 1: next year.

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Speaker 2: Okay, Leonella right here with me in Paris and Bloomberg Opinion,

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Speaker 2: Marcus Ashworth joining us as well. Thank you to you

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Speaker 2: both for talking us through the various aspects of this

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Speaker 2: unfolding crisis. You can read the latest from both Marcus

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Speaker 2: and Leonelle at Bloomberg dot com, Forward Slash Opinion