The French response to the “Yellow Vest” protest might be a critical point for the Eurozone bond markets, as it could kick off an era of escalated public debt in the bloc, adding extra loads on to a market, which has already been trembling on removal of the ECB stimulus, since ECB seems to be well-possessed with its previous plan of regarding the interest rate hike.
An increase in the spending could prove to be prepotent for the governments, which had been struggling to comprehend the discontent on living standards, however, it might also have met with a stronger challenge from the majority policymakers of UK parliament.
However, if the economic policy pushes up the bond supply, it would raise concerns some countries, which had already been suffered from service debts, adding further angsts in to ECB’s dovish policy of rate hike. Amid these horizontal challenges over the Eurozone debt, the people of France have been taken in to the streets wearing brightly colored “Yellow Vests”, which had begun as a response to an increase in the oil tax, however, the protest has now severely spread across the streets of Paris, objecting the economic policies of French President, Emmanuel Macron.
As a response to the protest, Macron had curbed the tax for pensioners and the minimum wages had been increased, altogether, which would cost France an additional 10 billion euro and debts would be on the rise again, shaking the eurozone bonds.
A strategist at Pictet Wealth Management, Frederik Ducrozet commented, “If there is more fiscal flexibility with Italy and France, then this is the start of a new era, an inflection point in terms of fiscal policy. ”