The Backstop Is Fraying: Goldman Warns Europe's Election Cycle Threatens The Fiscal Integration That Kept Spreads Tight

Last week the bond market delivered its verdict on France. This weekend Goldman's economists explained why the verdict may be too generous.

With the French 10Y yield pushing through 5% and, as Goldman's distressed desk put it this morning, "the 10-year OAT–Bund spread widening to 178 bps, its widest since the 2011 eurozone debt crisis", the bank's European economics team has just raised its 2027 French deficit forecast to 5.4% of GDP. That is a full 0.4pp above the government's 5.0% target, and a notch above the 5.3% the bank's own rates desk was citing just two days ago. And it gets worse: the economists say Europe's upcoming election cycle, with general elections in France, Italy and Spain, "presents net upside risks for deficits, particularly in France and Italy."

Germany Opens The Taps, Everyone Else Is Supposed To Tighten