Elections create need for a more balanced policy mix, says Pioneer Investments’ Cosimo Marasciulo
After a weekend of elections, Cosimo Marasciulo, Head of Government Bond and FX at Pioneer Investments provides his insights on the political changes in France and Greece. He explains the thinking behind his views and touches on some recent investment decisions and the opportunities ahead.
What’s the likely impact of the French presidential vote, for France as well as the Euro zone?
The political change in France looks disruptive for EU relations at first glance, as the new President sounded very critical about Germany’s insistence on fiscal austerity during the electoral campaign. For its part, the German government had openly backed the incumbent and this may lead to some rifts with the new French Government at least in the early days in office. We can expect more turbulence and more inconclusive EU summits, so the burden will fall once again on the ECB.
Do you see any impact on the solution to the euro debt crisis?
There may be a silver lining in France’s political change, as the support grows for policies combining austerity and economic growth. Germany will be hard to convince, of course, but the proposals made by the second, third and fourth EMU countries cannot be lightly dismissed. The French Socialist party may be ideologically different to Spain’s centre-right and Italy’s technocrats, but a balanced approach to the debt crisis of all three is backed by financial markets and is shared more and more vocally by the ECB. Its latest governing council has clearly put downside risks to growth and has talked down inflation. In the jargon of US Federal Reserve, this would mean that a rate cut is around the corner, and even a third long-term refinancing facility is possible.
France retains one of the highest ratings in government debt in Europe. Do you see any risks of downgrade?
The French Socialist party is not the same as in the early eighties, although some of its basic principles seem backward-looking, as they focus on tax-and-spend economic policies that are unlikely to be well received by major rating agencies (and financial markets). We believe that, once in office, the new government will be more pragmatic in carrying out the economic policy than during the electoral campaign.