Source: yahoo finance

(Dec 2): Finance Minister Antoine Armand said France won’t accept artificial budget deadlines from Marine Le Pen even as the far-right leader gave her strongest indication yet that she’s prepared to topple the government as soon as this week.

Le Pen’s National Rally has threatened to support a no-confidence motion unless Prime Minister Michel Barnier tweaks his 2025 budget to index pensions to inflation among other asks. The far-right leader told Barnier he needs to make the changes by Monday, which is when opposition lawmakers are expected to initiate the process to call the vote of no-confidence.

“The French government doesn’t take ultimatums,” Armand said in an interview with Bloomberg Television on Sunday. “We won’t be blackmailed.”

Bond investors have punished France’s sovereign debt relative to its peers amid the political brinkmanship in Paris, pushing borrowing costs at one point last week as high as Greece’s and leading Barnier to warn of a “storm” in financial markets. The political difficulties and market jitters began in June when President Emmanuel Macron called snap elections in a bid to bring clarity in a National Assembly where his party was already short of an outright majority.

Le Pen, who heads the single biggest party in the National Assembly, already scored a victory last week after Barnier agreed to abandon raising taxes on electricity, one of the National Rally’s key demands. This emboldened the far-right party to add to its demands. A no-confidence vote could happen as soon as Wednesday.

The euro slipped in early Asia trading Monday as investors reacted to Armand’s comments. The common currency fell about 0.4% to around $1.054.

“The French political turmoil is certainly not helping the euro,” said Rodrigo Catril, strategist at National Australia Bank Ltd. in Sydney. “An actual collapse of the government via a successful vote of no confidence would add another layer of uncertainty.”

Barnier’s budget legislation, which incorporates €60 billion ($63.5 billion) of adjustments, is an attempt to bring order to France’s fiscal situation, with the country’s deficit expected to reach 6.1% of economic output this year.

Budget Minister Laurent Saint-Martin told Le Parisien newspaper over the weekend that requests to amend the budget would cost nearly €10 billion and that the government wouldn’t make any further concessions.

Le Pen lashed out at the comments, telling the AFP newswire that Barnier’s administration “has put an end to discussions.” She has made clear that if her red lines aren’t met then her party will join with the left to topple the government. National Rally President Jordan Bardella accused the government of putting its very existence at risk “out of stubbornness and sectarianism.”

The far-right party’s increasingly combative stance has encouraged investors to bet that Le Pen is preparing to push out the government.

The yield premium between 10-year government bonds and safer German equivalents, a closely watched gauge of risk, recently touched 90 basis points — the widest since 2012 — before tightening back to around 80 basis points on Friday. France’s benchmark equity index is on track for its worst year relative to European shares since 2010.

France’s 10-year bond yield last week briefly matched Greece’s, a country once at the heart of the European sovereign debt crisis. Armand dismissed the comparison, saying France’s economy is solid.

“Greece has done an incredible job after the crisis to reduce public spending,” he said. “But France is not Greece. France’s economy is not Greece’s economy.”

Macron’s gamble with a snap election left the lower house split into three fiercely opposed blocs: a diminished center supporting the president, a leftist alliance and a strengthened far right led by Le Pen. With no coalition possible, Macron appointed Barnier prime minister in September with a core mission to get France’s messy finances in order.

Even before the political turbulence of the last several weeks, France’s finances were a growing concern for investors as plans to reduce debt slipped off course at the end of 2024. With tax revenue far below estimates, the government now expects the budget deficit to reach 6.1% of economic output this year instead of declining to 4.4% as initially planned.

Barnier’s 2025 budget aims to narrow the gap to 5% with shock therapy of €60 billion of tax increases and spending cuts. In the interview, Armand insisted that wavering on the commitment to reduce the budget deficit toward 5% in 2025 and toward 3% to in 2029 was “not an option.”

“What’s my responsibility as a finance minister is to commit to the 5% target that we decided to have at the beginning of our mandate, not only for France or for the government because it’s now needed in order that Europe stills remains a continent of prosperity,” he said.

There aren’t precedents for a government collapsing so close to the end-year deadline for a budget. Still, lawmakers and legal experts have pointed to emergency measures that could permit the state to collect taxes and decrees to authorize minimal spending in order to avoid a shutdown.

The National Rally has said it would support such an outcome, while ministers have warned it could inflict harmful austerity and impair efforts to repair finances. Le Pen also played down the consequences of having no budget by end year, telling the newspaper La Tribune that “the French system is well designed, and there’s absolutely no reason to panic, because nothing is definitive.”

If Barnier is evicted from office, Macron would have to re-appoint him or pick a new premier. But the president would face the same difficult balancing act with no possibility for fresh legislative elections until July.

Any new government that emerges would still need urgently to propose a 2025 budget.

Armand sought to reassure investors, saying he’s confident France will continue to reform its economy and attract investors.

“France is committed to keep this European leadership with Germany, with Italy, with Spain, with all European countries so that this growth agenda could be the best answer to the international and trade tensions that are going on now,” he said.

Source: Theedgemarkets

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SEOUL - South Korea’s factory activity rose in November, after two straight months of declines, thanks to improving demand in Asia, a private sector survey showed on Dec 2.

The purchasing managers index (PMI) for manufacturers in Asia’s fourth-largest economy, compiled by S&P Global, rose to 50.6 in November, above the 50 mark that separates expansion from contraction and 48.3 in October.

“November PMI data signalled that the South Korean manufacturing sector saw a renewed improvement in operating conditions,” said economist Usamah Bhatti at S&P Global Market Intelligence. “Firms were particularly buoyed by international demand.”

New orders rose for the first time in three months, with new export orders growing at the fastest pace since July. Output fell but the decline was milder than the month before.

In the survey, manufacturers noted new contract wins and orders for new products from abroad, particularly from major markets across the Asia-Pacific region.

Economic activity has been improving in China recently with Beijing rolling out stimulus measures as it braces for the second term of US President-elect Donald Trump, who has vowed more tariffs against China.

South Korea last week delivered a surprise interest rate cut and signalled more to come, as policymakers turned a wary eye to trade risks from a second Trump presidency.

The rebound in export demand last month pressured production capacity, with backlogs of work rising for the first time in five months and at the fastest rate since June 2022, while stocks of raw materials and semi-finished goods jumped the most in 14 months.

Manufacturers’ optimism for the year ahead improved to a three-month high, as firms hoped for continued growth in new product orders and improvements in domestic conditions. 

Source: Straitstimes