Political paralysis

In our Q3 house-view that is just out, one of the key investment themes we highlight for investors going forward is (geo)political risk. After the new Labour PM moving into Downing Street 10 and now the leftist popular front winning the 2^nd round of the parliamentary elections, political risks crystallized quicker than expected in both the UK and France. The euro and French bond futures slipped this morning, as investors anticipate additional fiscal problems for France, given the lefts commitment to a major increase in public spending. The Institut Montaigne estimates that the campaign pledges by the New Popular Front would require nearly €179 billion ($194 billion) in extra funds per year financed by debt and taxes, with more radical proposed measures like retirement age at 60 years, increase of the minimum salary. We are not there yet as there is no absolute majority. The French Premier Attal announced he will offer his resignation today. Currently, we can hope at best for a technocrat government unwilling to take painful decisions: political paralysis at its best.