UBS has warned that Britain could become an “island of stability” in financial markets as France reels from President Emmanuel Macron’s debt mania.
Shahab Jalinoos of UBS said Britain’s reputation as Europe’s “problem child” could be overturned amid increased political uncertainty in France after President Macron triggered early elections.
The UK’s position is “very different to that of France, which first of all risks a clash with the European Commission,” he said, hours after Brussels criticised Macron’s debt mania.
The French president has called early elections after his party’s poor performance in European elections, raising concerns that the far-right, led by Marine Le Pen, may gain greater influence.
Bond investors worried that this would risk further borrowing, causing turmoil in financial markets.
Jarrineau said the far-left is also proposing radical policies in France.
He added: “In that context, Britain may actually look like an island of stability. After a decade of looking like Europe’s problem child, things may finally be turning around.”
“From a pound perspective, that’s probably a good thing.”
The rise of the far-right in Germany
He said a strong performance by the far-right in next year’s German elections could make Britain even more attractive and send sterling rising by up to 10 percent.
His comments came after the European Commission said France could risk fines if its finances get out of control again.
Policymakers in Brussels said on Wednesday that France is one of seven countries under scrutiny for having budget deficits that are too large.
This means France has been subject to a so-called excessive deficit procedure and could be fined if it does not reduce its borrowing.
The disciplinary action comes at a terrible time for the French president, who has been in political and financial turmoil since calling early elections earlier this month.
The growing likelihood of Macron’s defeat by Le Pen’s National Rally has rattled bond markets as investors worry that the country will face higher interest rates if it borrows more.
The European Commission warned on Wednesday that the president’s economic plan would mean a sharp rise in debt, arguing that this represents a “high risk in the medium term.”
According to a 10-year baseline forecast, the EU expects France’s debt ratio to rise to around 139% of GDP by 2034 from just over 110% now.
“Debt trajectories are sensitive to macroeconomic shocks,” he said.
France, along with Prime Minister Giorgia Meloni’s Italy, are among the countries found to be in breach of budget deficit rules that require borrowing to be kept below 3% of annual GDP.