The RGE Western Europe Team discuss our French scenario analysis
, and the French banking and housing sectors. The conversation covers:
- In the context of our three eurozone (EZ) scenarios, our base case envisions a sharp rise in France’s public debt-to-GDP ratio, with the EZ debt crisis weighing heavily on economic growth prospects and the government unlikely to meet its 3% deficit target in 2013.
- In the short term, President Hollande is unlikely to introduce required public spending cuts or structural reforms and France will therefore remain vulnerable to EZ crisis contagion.
- French banks are highly leveraged and exposed to multiple distressed economies; in our base case we expect some €80 billion of recap needs over the next few years.
- French households are very rich but assets are concentrated in real estate, and income and wealth inequality are high; the temptation for the Socialist government to tax this wealth will likely prove irresistible.