Thursday 06, July 2017 by William Mullally

Markets: France is back

By Christopher Dembik, Head of Macro Analysis at Saxo Bank

Since the GFC, there is no quiet summer for investors. However, risk seems quite limited for July and August.

What we call the "Macron effect" will certainly vanish in the next three months. The expected labour market revolution has not materialised. The reform, which has been recently unveiled, consists essentially in a simplification of the labour code aiming to reduce legal insecurity for entrepreneurs and in a flexibilization of the employment contract with the extension of the “mission contract” to other sectors than construction. U

nlike fixed-term contracts where the termination is known from the beginning, this next contract expires only when the project is done, which give the employer more flexibility. Until now, it was mainly used in the construction sector to deal with site delays.

France has no choice but to succeed in reforming the labour market, which was one of the key reforms strongly suggested by the EC in its last recommendation, if it does not want to be sanctioned by the European authorities for excessive deficit. that is the deal. The EC can temporary turn a blind eye on France’s public finances on the condition that structural reforms are implemented.

Unsurprisingly, the country is not expected to meet its deficit target set at 2.8 per cent of GDP this year. It should be around 3.2 per cent, at best 3 per cent if spending cuts are quickly decided. France is back but remains Europe’s ugly duckling. Since 1999, the country has been 13 years in violation of the 3 per cent deficit / GDP criterion versus 9 years for Italy, 7 years for Germany and only 1 year for Denmark according to the WEO.

Since the GFC, there is no quiet summer for investors. However, risk seems quite limited for July and August.

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