ECB policy-makers remain in no rush to act, but the risk of a National Rally-led government after Sunday’s second round is far from averted
The European Central Bank has faced questions about whether it would shore up France’s rattled bond market ever since President Emmanuel Macron called a snap parliamentary election last month, raising the prospect of a far-right government.
Another policy maker at the Sintra gathering said even a risk premium – gauged by the gap between French and benchmark German sovereign bond yields – of 100 basis points would not warrant action and another said the current spreads appear tight considering France’s high public debt. This may prove a problem for France, which is under an “excessive deficit procedure” by the European Commission, although ECB President Christine Lagarde has said this is just “an alternative condition”.
This would particularly be the case if the bond selloff in France spreads to other debt-laden countries such as Greece, Italy, Portugal and Greece. Financial market participants speculate the ECB might buy bonds from countries other than France but central bankers found the notion of fighting a fire without tackling its source unconvincing.
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