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This article has been automatically translated from Dutch. Click here to see the orginal article including all links to sources
This week, Marine Le Pen emerges as potentially the most influential figure in Europe. She holds the power to topple the government of Europe’s second-largest economy. Due to this political instability, investors now perceive lending to France as nearly as risky as lending to Greece. We also examine the resurgence of inflation and question whether we’re at the start of a second inflationary wave driven by a wage-price spiral.
Two months ago, we highlighted in our weekly selection that France was becoming Europe’s new problem child. Since late September, investors have demanded higher yields on French government bonds than on Spanish bonds. Today, France is perceived as equally or even more risky than Greece, a country synonymous with the eurozone debt crisis.
Greek vs. French Bond Yields (source: Zerohedge)
France is grappling with severe political instability. Snap elections this summer led to a new government under Prime Minister Michel Barnier. However, his government may already be on the verge of collapse. Tasked with addressing a massive budget deficit of 6%, Barnier proposed €60 billion in tax hikes and spending cuts to bring the deficit below the 3% threshold by 2029. These measures, however, lack majority support. The government may invoke Article 49.3 of the Constitution, a constitutional mechanism to bypass parliamentary approval for the budget.
Marine Le Pen (source: Rémi Noyon)
Left-wing opposition parties have threatened a no-confidence motion. If Marine Le Pen’s party, Rassemblement National (RN), supports the motion, the government could fall as early as Wednesday. Le Pen holds a pivotal role and can set demands. In response, Barnier has already conceded to scrapping a proposed electricity tax hike, a key demand of RN. Barnier must also secure approval for the social security segment of the budget by Monday. Le Pen, however, has stated she will vote for the government’s fall if Article 49.3 is invoked.
This instability is impacting financial markets. France’s economic model, reliant on a large central government, is stalling, with structural reforms hampered by political paralysis. Consequently, the spread between French and German 10-year bond yields has reached its highest level since the euro crisis. Éric Heyer, an economist at Sciences Po, cautions that comparisons with Greece’s debt crisis are exaggerated. At its peak, Greece faced 16% interest rates on its 10-year bonds, while France is currently at 3%.
CAC 40 vs. Stoxx 600 (source: Holger Zschaepitz)
France's reliance on tax hikes, instead of structural reforms, is eroding its business competitiveness. This is reflected in the performance of French equities; the CAC 40 is headed for its worst underperformance against European stocks since 2010. This comes as European stocks themselves continue to lag significantly behind U.S. equities. The Purchasing Managers’ Index (PMI) has also plunged since the Olympics. It remains to be seen whether Barnier will concede to Le Pen’s demands—stay tuned!
Inflation is rising again in the Netherlands. Statistics Netherlands (CBS) reported a 4% inflation rate for November compared to the same period last year, up from 3.6% in October. Food and services prices have seen notable increases. Dutch inflation is now double the European Central Bank (ECB)’s target of 2%.
CPI Netherlands(source: CBS)
Germany also reported a rise in inflation, from 2% in October to 2.2% in November. ING predicts growing opposition to a potential 0.5% ECB rate cut and warns of inflationary risks if Germany abandons its fiscal "debt brake" policy. Meanwhile, eurozone-wide inflation rose from 2% to 2.3%. Despite this, Euronews suggests the ECB will still proceed with a 25-basis-point rate cut in December.
Eurozone wage growth has surged to 5.4%, the highest increase since the euro’s introduction. This raises concerns about a wage-price spiral. Frank Knopers argues that we’re already in such a cycle. Historical data shows that inflation can occur in waves, and Otavio Costa of Crescat Capital predicts the U.S. may have reached the bottom of its first wave.
Historical Inflation Waves (source: Otavio Costa)
Jeroen Blokland remarked on X: “According to De Nederlandsche Bank, the average savings account interest rate is 1.47%. Keeping money in the bank is an expensive choice for Dutch savers.” It may be an opportune time to save in gold instead.
Last week, the price of gold reached an all-time high in euros, approaching €84,000 per kilogram after the publication of the weekly highlights. On Monday, we saw a decline, which, according to Ronnie Stoeferle, was the largest in three years. While that might sound dramatic, gold is not Bitcoin. Over the past few days, the price has stabilized between €80,000 and €81,000 per kilogram, the same level as on November 20.
Bloomberg published a newsletter today titled "The Race to Accumulate Gold Like Never Before", highlighting gold purchases by Eastern European central banks as a key driver of this trend. In an earlier article, Bloomberg named these central banks as the largest gold buyers, but gold analyst Jan Nieuwenhuijs countered this, stating that China is buying even more gold, albeit under the radar, which means these purchases don't appear in official IMF statistics.
Gold Price Forecast for 2030 (source: IGWT)
We spoke with Nieuwenhuijs last week on our podcast, where he predicted a gold price of $8,000 per troy ounce in the coming years. IGWT also shared their gold price forecast for 2030 this week, showing a chance-weighted peak of $4,821 based on their model.
Silver Demand Exceeds Supply
Bloomberg also reported this week that silver production has been unable to keep up with demand since 2021. This is partly due to silver’s growing use in solar panels and electronics. We noted this trend in our November 15 weekly highlights, pointing out record silver imports by India. Now, the Jerusalem Post adds that demand in China is also soaring.
