This Update answers the key questions that we received during this morning’s online Drop-in on the collapse of France’s government. (The recording is available here.) The key points are that while France is some way from a fiscal crisis, political instability makes it very likely that the budget deficit will remain wide and the debt ratio will keep rising. We suspect that the spreads on France’s bonds will widen further, taking them above Italy’s. That said, the risk of contagion to other euro-zone countries is low.
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