Despite the new French government’s plan to tighten fiscal policy by 2% of GDP next year, the country’s debt dynamics appear no better than they did a few weeks ago. Moreover, the government is proposing temporary measures which, by definition, will have only temporary effects. Permanent public finance reform is needed to calm investor nerves. Next week, we expect to learn that the latest euro-zone retail sales figures remain subdued while German industrial production probably fell a little more in August.
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