ReportWire

Tag: LondonWires

  • Gelato Godfather: Inside the Sicilian ice cream empire built on mafia money

    Gelato Godfather: Inside the Sicilian ice cream empire built on mafia money

    [ad_1]

    Two scoops of pistachio, one of corruption. For years holidaymakers have guzzled Sicilian gelato at famous parlours in Palermo, unaware that the booming businesses were controlled by organised crime.

    The fraud was a textbook case for detectives trained to sniff out dirty money, but even with three mobster classics — a suspicious bankruptcy, a front man and a scheming “Godfather” — it took years for investigators to shut the operation down.

    The Brioscia brand, made up of two ice cream parlours, was thriving at the end of the 2010s, attracting locals and foreign visitors alike with its glittering gold stars on travel websites.

    The shops were run by Mario Mancuso. Behind the scenes was Michele Micalizzi who had served several stretches in jail for Mafia association.

    Mancuso took care of the ice cream, Micalizzi managed the rest.

    That included taking a cut of the profits for protecting Mancuso from extortion attempts by other gangsters, a judicial source told AFP.

    But the company was in the name of Mancuso’s wife and when divorce loomed, the men feared they would lose control.

    They declared Brioscia bankrupt in 2021, blaming the four million euro ($4.3 million) hole in the books on the Covid lockdown, the source said.

    “It was a flourishing business, very well known in Palermo. The bankruptcy was therefore unjustified,” he told AFP.

    Suspicious investigators used wiretaps to discover the two men — far from being bankrupt — had grand plans to open parlours abroad.

    The pair launched a new company called Sharbat, renaming the shops, the source said.

    “I’m not even sure the employees knew who they were working for”, a nearby shop worker said on condition of anonymity.

    Investigators say the men divided the windfall, with Micalizzi passing part of it to his jailed relatives to pay for legal fees or sundries.

    But on August 12, the police pounced, arresting both men and four accomplices, and seizing 1.5 million euros.

    Mancuso and Micalizzi are being prosecuted for criminal association of a mafia nature, extortion and fraudulent bankruptcy.

    The Mafia’s billions

    Between drug trafficking, racketeering, public procurement, legal companies or empty shells dedicated to money laundering, Italy’s Central Bank estimates the annual turnover of the country’s organised crime groups at 40 billion euros, or two percent of national wealth.

    The mob still makes good money from traditional crimes such as drug trafficking. The ‘Ndrangheta in the southern region of Calabria, for example, is responsible for much of Europe’s cocaine trade.

    “It also makes direct investments in the legal economy,” according to Rocco Sciarrone, who teaches criminal psychology at Turin University.

    Over two-thirds of mafia infiltrations are in the construction, trade, real estate and manufacturing sectors, according to a 2022 report by economist Antonio Parbonetti.

    The mob also has tentacles in agriculture, hotels and restaurants, logistics, transport, and waste management.

    How much the crime groups “invest” in each sector varies significantly from one region to another.

    “The socio-economic fabric (in Sicily) is made up of small family businesses that lend themselves very well to money laundering,” said Eliseo Davi from Palermo University.

    According to the Parbonetti report, one in two companies controlled by the mafia is a so-called “star” company, which generates comfortable income and employs people, and therefore has a broad social, economic and political support.

    In the Palermo gelato affair, the company did not have the necessary permits for one of the two shops, prompting calls for a probe into whether there was collusion with public officials.

    Near the parlours lies the former home of Giovanni Falcone, an anti-mafia judge whose 1992 assassination by the mob triggered a crackdown by the state that permanently weakened Cosa Nostra.

    Just like US law enforcement agent Eliot Ness, who brought down gangster Al Capone, Falcone had a simple rule: follow the money.

    [ad_2]

    Victor Le Boisselier, Gael Branchereau, AFP

    Source link

  • Once vibrant, now desolate: Drought ravages Greece’s lakes, leaving a lifeless landscape

    Once vibrant, now desolate: Drought ravages Greece’s lakes, leaving a lifeless landscape

    [ad_1]

    Lake Koronia, one of largest in Greece, is shrinking after a prolonged drought and a summer of record-breaking temperatures, leaving behind cracked earth, dead fish and a persistent stench.

    Where once fishermen pulled trout and tench into their boats, youths on motorbikes now joyride in the dust.

    Locals say they can see the 42-square-kilometre (16-square-mile) expanse of water near Thessaloniki retreating day by day — a fate shared by three other important natural lakes in Greece’s Central Macedonian breadbasket.

    “The stench from the lake is getting very bad. If we don’t get enough snow and rain, the problem will get worse next year,” said local community leader Kostas Hadzivoulgaridis.

    “We need (officials) to take immediate action to protect the lake,” the 50-year-old told AFP.

    Water levels at three other natural lakes in the region — Doirani, Volvi and Pikrolimni — are also at their lowest in a decade, according to data last month from the Greek Biotope Wetland Centre.

    Over the last two years, rainfall in the region has been “very low” and the temperatures recorded this year were the highest in the last decade, according to Irini Varsami, a local hydrologist.

    As well as losing water directly through evaporation, the lake is being drained by the “increasing irrigation needs of (farmers in) the surrounding area”, one of the important food-producing plains in the country.

    ‘We hope for rain’

    While the shores look like a lunar landscape bereft of life, flocks of migratory pink flamingos graze in the low water further in.

    Anthi Vafiadou, a regional supervisor for the Greek state environmental protection agency, said it was “too early” to draw conclusions on the impact of the drought on the lake’s biodiversity.

    “We must see how the winter season evolves. We hope there will be more rain,” she told AFP.

    But what is certain, according to the Biotope Wetland Centre, is that climate change is putting huge pressure on the lakes.

    According to the national observatory, Greece had the warmest winter and summer on record since reliable data collection began in 1960.

    Greece’s environment ministry this week unveiled a multi-billion-euro plan to boost the water supply and limit rampant water loss through poor management.

    ‘Completely disappeared’

    Less than an hour’s drive to the north is a bleak vision of what the future might hold.

    Pikrolimni, or “Bitter Lake”, is the only salt lake in mainland Greece.

    But Pikrolimni is a lake in name only now. All that remains are the patterns formed by the water that evaporated during the prolonged drought.

    Hotels and a mud spa around its edge lie abandoned.

    “This is the first summer that the lake has been in such a state. There has been no rain, the water has completely disappeared and the lake has literally dried up,” said Argyris Vergis, an 80-year-old local.

    “This area used to be busy with tourists, but now you can see motorcyclists racing on the lake on the internet. It’s tragic,” the retired bank worker said.

    [ad_2]

    Vassilis Kyriakoulis, AFP

    Source link

  • Paris Paralympics: 500,000 tickets still unsold—but organizers are confident that seats will be filled

    Paris Paralympics: 500,000 tickets still unsold—but organizers are confident that seats will be filled

    [ad_1]

    Organisers of the Paris Paralympics announced Tuesday that over two million tickets have been sold as the Games prepare to open.

    “We have already sold around two million tickets, so that’s good. There will be full stadia,” said Paris 2024 president Tony Estanguet at a press conference, alongside International Paralympic Committee (IPC) president Andrew Parsons.

    There remain 500,000 unsold tickets for the Paralympics, which get underway on Wednesday with an opening ceremony in central Paris.

    The best-selling events are blind football, taekwondo, track cycling, shooting, triathlon and equestrianism.

    Organisers put more tickets on sale on Monday for the most in-demand events, which will take place in venues such as the Grand Palais — which proved a hit when hosting the fencing and taekwondo during the Olympics — and the grounds of the Palace of Versailles.

    Many of these sites have been adapted since the Olympics to make them more accessible for people with reduced mobility.

    “Sometimes with Paralympic sports, the first reaction (of the spectators) is surprise… then this connection starts between what they see on the field of play (and them),” said Parsons.

    Organisers are confident that more seats will be filled.

    “I know that we are going to continue selling tickets, even during the events and right up until the end, just like at the Olympics,” said Estanguet.

    Explore our new special issue. A Wall Street legend gets a radical makeover, crypto iniquity, misbehaving poultry royalty, and more. Read the stories.

    [ad_2]

    AFP

    Source link

  • Greenpeace files supreme court case accusing Finland of climate inaction

    Greenpeace files supreme court case accusing Finland of climate inaction

    [ad_1]

    A group of environmental and rights organisations said Thursday that they were suing the Finnish government for violating the country’s climate legislation by not taking adequate action to hit climate targets.

    The six organisations noted in a statement that Finland in 2022 had adopted “one of the strongest net zero climate targets among industrialised nations, committing to become climate neutral by 2035 and reach net negative emissions thereafter.”

    In their lawsuit filed to Finland’s Supreme Administrative Court, the groups argue that the “lack of adequate climate action” by Finland’s right-wing government is violating the country’s Climate Act.

    “Our government is failing to enact solutions, cancelling agreed actions and refusing to revise Finland’s outdated climate plan for land use and forestry”, Greenpeace Senior Policy Advisor Kaisa Kosonen said.

    “This constitutes a violation of the Climate Act, so it’s our duty as NGOs to take legal action”, she said.

    According to the organisations, Finland is not on track to meet its emission reduction targets, primarily as a result of excessive logging and a lack of efforts to curb emissions from the agricultural and transport sectors.

    The groups said the case builds on an earlier ruling by a Finnish court and a recent ruling by the European Court of Human Rights (ECtHR) which found that Switzerland violated the human rights of a group of elderly women by not doing enough to combat global warming.

    “Governments’ inaction on climate change endangers the realisation of many human rights, such as the rights to life and health and the right to a clean, healthy and sustainable environment”, Elina Mikola, climate and environment advisor at Amnesty Finland, said.

    The lawsuit was filed August 2 by the Finnish Association for Nature Conservation, Greenpeace Norden, Amnesty International Finland, Grandparents for Climate, the Finnish Nature League and the Finnish Sami Youth.

    Finland’s first climate trial ended last year with the Supreme Administrative Court eventually dismissing a complaint against the Finnish state over insufficient climate action.

    Recommended Newsletter: CEO Daily provides key context for the news leaders need to know from across the world of business. Every weekday morning, more than 125,000 readers trust CEO Daily for insights about–and from inside–the C-suite. Subscribe Now.

    [ad_2]

    AFP

    Source link

  • Extreme heat and humidity are causing 47,000 deaths across Europe—here’s what it does to the human body

    Extreme heat and humidity are causing 47,000 deaths across Europe—here’s what it does to the human body

    [ad_1]

    The world’s two hottest days on record happened in July and 2024 is on track to be the warmest year ever. Heat waves are more frequent, have been more acute, and often arrived earlier than anticipated. Factor in humidity, and extreme weather is already testing the limits of the human body. More than 1,300 people died during the Hajj pilgrimage in Saudi Arabia in June as temperatures reached about 52C (126F), while heat-related fatalities have also been recorded this year in locations including the US, Thailand, India and Mexico. Parts of Europe — where high temperatures contributed to over 47,000 deaths in 2023 — remain on alert for more extreme conditions this summer. 

    What makes extreme heat so dangerous?

    There are many reasons. People are more likely to dehydrate in high temperatures, increasing the risk of heart attack and stroke. Heat can worsen breathing problems, especially in places with elevated pollution levels. Heat stress makes it harder for people to work and increases the likelihood of injuries. It’s hard to know exactly how many people die from heat each year; most go uncounted. Europe likely experienced 61,672 deaths attributable to heat in 2022, though that number potentially underestimates the actual total, according to a study led by the Barcelona Institute for Global Health. Emerging economies suffer more than developed ones, as there tends to be little respite from the sun; most people work outside and few have effective cooling at home. Concrete and asphalt in urban settings can trap the heat, increasing overnight temperatures and contributing to heat stress. Women and seniors have been found in studies to be the populations most affected by extremely hot weather. 

    How is extreme heat measured? 

    Forecasters are increasingly using measures of heat stress and discomfort — like humidex, heat index or apparent temperature — to understand the health risks posed by high temperatures. “Wet-bulb” is one of these measures. It accounts for the effects of humidity, which makes it harder for the human body to cool itself by sweating. For example, 42C with 40% humidity — think Phoenix, Ariz., in July — has a wet-bulb temperature around 30C. A lower temperature of, say, 38C, but with higher humidity of 80%, will give a wet-bulb reading around 35C. That’s high enough to trigger heatstroke even for healthy people with unlimited shade and water, and has already started to appear in coastal subtropical regions. In reality, shade and water are often limited, and heat can kill at much lower wet-bulb temperatures. A 2020 study published in the journal Science found regions affected by the 2003 European and 2010 Russian heat waves, which proved deadly for thousands, experienced wet-bulb values no greater than 28C. 

    How are wet-bulb temperatures measured?

    Originally by wrapping a wet cloth around the bulb of a thermometer. Scientists would record the level after moisture’s vaporization cools it down, the way the body cools down by sweating. Now, wet-bulb temperatures are measured using electronic instruments at weather stations, with further studies of hot spots assisted by satellite data from sources including NASA and the International Space Station. The National Oceanic and Atmospheric Administration in the US also developed a tool to forecast a more advanced metric of heat stress, the wet-bulb globe temperature, which factors in wind speed, sun angle and cloud cover. 

    Where is this a problem? 

    Traditionally, heat and humidity have been highest in South Asia and subtropical climates. Some places in India have notched wet-bulb temperatures higher than 32C; the UN predicts it will be one of the first countries to surpass a wet-bulb temperature of 35C. Planetary warming and the impact of the El Nino weather pattern mean there’s a high chance temperature and humidity records will be set this year across a sweep of regions straddling the equator, including Florida, Texas, much of Africa, India, Australia, and Central and South America, according to the University of California, Berkeley. Increasingly, typically temperate places are also seeing incredibly hot days. The UK registered a record of 40.3C in July 2022, though relatively low humidity kept the wet-bulb temperature around 25C. Barcelona experienced its hottest ever day in late July. In the US, heat alerts covered about half the population on Aug. 1, the World Meteorologial Organization said. Japan, Greece, Hungary and Croatia were among nations to experience their warmest July on record. 

    What is the economic impact of heat?

    In places with extreme heat, every aspect of life becomes more challenging, and inequalities become more acute, especially in cities. But even cooler places feel the effects, typically through higher food and energy prices. Coffee prices this year surged to a 45-year high as persistent heat and drought exacerbated a supply crunch in Vietnam, the world’s largest robusta producer. Dry conditions in Russia this year prompted analysts to cut wheat production forecasts, and supply of crops including rapeseed and chickpeas also remains susceptible to the impact of heat. Previous El Niños resulted in a marked impact on global inflation, adding 3.9 percentage points to non-energy commodity prices and 3.5 points to oil, according to Bloomberg Economics modeling. Power consumption also rises during peak heat, straining the grid and consumers’ pockets as prices jump. Natural gas prices advanced this summer as consumers grappled with blackout risks; Egypt, typically an exporter of the fuel, resorted to buying LNG amid higher demand. Heat also exacerbates drought, adding further stress to hydropower and nuclear power production. Extreme temperatures pose an increasing threat to outdoor activities, disrupting events including concerts, religious gatherings, and sporting events.

    How is extreme heat related to climate change? 

    A new branch of science, extreme event attribution, connects global warming to severe episodes of weather with a degree of specificity. Heat waves are most directly linked to humanity’s greenhouse gas pollution. And heat, along with dryness and wind, fuels forest fires, which is why scientists are now confident that climate change is exacerbating wildfires in the western US, Australia and elsewhere. (The US fire season is two months longer than it was in the 1970s and 1980s.) Global warming is making tropical cyclones — also called hurricanes or typhoons — more intense. Warmer water and moister air — two results of global warming — provide added fuel to such storms, such as the record-breaking Hurricane Beryl in July that raged through parts of the Caribbean and US. In India and Pakistan, extreme heat is 30 times more likely due to a changing climate.

    Recommended Newsletter: CEO Daily provides key context for the news leaders need to know from across the world of business. Every weekday morning, more than 125,000 readers trust CEO Daily for insights about–and from inside–the C-suite. Subscribe Now.

    [ad_2]

    Bloomberg

    Source link

  • Growing mangoes in Greece is the latest bizarre climate change experiment as droughts become the norm

    Growing mangoes in Greece is the latest bizarre climate change experiment as droughts become the norm

    [ad_1]

    Stirring the leaves of a shrub on his farm in Kyparissia, western Greece, Panos Adamopoulos spied the first soon-to-be-ripe mangoes — his share of a state experiment against climate change.

    “Right there!” he exclaimed.

    For decades, this fertile land on the shores of the Ionian Sea has been mainly known for olives, in addition to watermelon and other crops.

    But even this part of Greece that sees more rain than other parts of the country is grappling with the effects of drought.

    After the warmest winter on record, Greece also experienced the hottest June and July since reliable data collection began in 1960.

    “There is no winter,” Adamopoulos, 38, told AFP, adding that his property has not received a drop of rain since March.

    “No water, no cultivation,” said the farmer, whose trees seem to grow right into the Ionian Sea.

    Most of Adamopoulos’ income currently comes from iceberg lettuce.

    But with increasingly arid seasons in sight, he may soon have to give up on some of his lucrative, yet water-intensive crops, such as watermelon.

    Adamopoulos is among a small number of Greek growers turning to tropical fruits — mangoes, avocados, lychees, cherimoya and macadamia nuts — which he says are “more resistant” to the increasingly intense heat in the Mediterranean region.

    For now, he only grows a few dozen mango and avocado trees on his 80-hectare (198-acre) estate.

    The exotic fruits are adapting so well to their new surroundings that Adamopoulos now plans to plant a further 300 trees. He he said he had already received orders for his first harvests, due later this month.

    The initiative is part of a study by Greek state agriculture institute Demeter to determine whether tropical fruits could help address the country’s looming drought problem.

    Not a miracle solution

    Study supervisor Teresa Tzatzani says the point is to “find new ways to face this climate change, and make it work in our favour”.

    “It is hotter all year round now, and this is good for these crops,” she said.

    Although avocado already grows on the island of Crete, scientists were unsure whether the tree would adapt to conditions on the Greek mainland.

    And while mango trees need very little rainfall, the last two winters have been unusually dry, Tzatzani noted.

    This type of innovation is essential to save the sector from future climate disasters, said Antonis Paraskevopoulos, head of agriculture for the local region of Triphylia.

    But for now, tropical fruits are not a miracle solution.

    The programme currently has only a dozen farmers and around 10 hectares under cultivation.

    And while it is not intended to replace staple local products such as olives or oranges, it can act as a complement, said Tzatzani, who plans to extend the experiment to other Greek regions.

    Neighbouring countries are experiencing similar problems. In Italy, Sicilian farmers have started producing mangoes, bananas and papayas.

    The Intergovernmental Panel on Climate Change (IPCC) estimates that the Mediterranean basin, one of the “hotspots” of climate change, will experience more frequent heat waves and droughts.

    A ‘bad year’?

    Theodoros Dimitrakakis, another Greek farmer taking part in the initiative, estimates that it will take years for tropical fruit production to become profitable in Greece.

    Despite his enthusiasm for the experiment, the 34-year-old says he can’t afford to devote all his time to it, as his main source of income, olive trees, requires all of his attention.

    His village, like many in Greece, is often without water for several hours during the day due to scheduled cuts.

    Last year, his olive yield was 60 percent below average, Dimitrakakis said.

    Despite being an environmental activist during his university years, Dimitrakakis acknowledges that he only recently realised that climate change would impact him so soon.

    He now hopes to convince other local farmers, some of whom prefer to think it’s just a “bad year”.

    Recommended Newsletter: CEO Daily provides key context for the news leaders need to know from across the world of business. Every weekday morning, more than 125,000 readers trust CEO Daily for insights about–and from inside–the C-suite. Subscribe Now.

    [ad_2]

    Lea Dauple, AFP

    Source link

  • France’s leftists win shock victory

    France’s leftists win shock victory

    [ad_1]

    French markets erased initial losses as investors speculated that the lack of a clear majority in the election means the next government will have to compromise, which will keep the most extreme policies off the table. 

    The CAC 40 Index added 0.2% after falling as much as 0.6% in early trading. French bonds were little changed, with the 10-year yield at 3.2%, and the euro steadied. 

    “For markets this is a double-edged sword,” RBC analysts including Peter Schaffrik wrote. “The left wing alliance is not seen as business friendly and should command less faith in prudent budget management. However, the lack of a clear majority in the Assembly should blunt any spending plans for the time being and act as a cushion for spread widening.”

    While money managers have spent the last week or so fretting over a Le Pen-dominated government, the left’s success is still a concern for investors because it amounts to a fresh dose of uncertainty in the euro-area’s second-largest economy and foreshadows more political wrangling ahead. 

    Still, the left alliance lacks an absolute majority — limiting how much it can do — and some strategists suggested a hung parliament would be a positive outcome for investors.

    The gap between 10-year French and German yields, a measure of credit risk, sits at around 70 basis points, below levels seen at the height of the market rout last month.

    “French politics confounds yet again,” said Geoffrey Yu, senior strategist at Bank of New York Mellon. “Based on the results, risks of expansionary fiscal policy remain, and perhaps on the margins have picked up.”

    The New Popular Front — which includes the Socialists and far-left France Unbowed — won 178 seats in the National Assembly, according to data compiled by the Interior Ministry. Marine Le Pen’s National Rally, which pollsters last week had seen winning the election, came third with 143, while President Emmanuel Macron’s centrist alliance notched up 156.

    French markets plunged into a tailspin in June, wiping out billions of euros from stocks and bonds as Macron’s snap poll prompted concern that the far-right would take power. But over the past week, traders pared a chunk of those losses as opinion polls indicated that the National Rally would fall short of an outright majority. France’s CAC 40 Index last week erased about half of the losses it endured in the aftermath of Macron’s announcement. 

    The outcome is very different: Macron’s centrist party — favored by investors — came in second place, despite a poor showing in the first round of voting. That could leave the president in a position to cobble together a centrist coalition.

    What Our Strategists Are Saying…

    “Already the French far-left leader is saying he will implement his entire program and that he is unwilling to to enter any deals with Macron. That tone of defiance will hardly sit well with French bond investors.”

    — Ven Ram, cross-asset strategist

    An absolute majority for the left was identified by investors as the scenario they were most concerned about in the days ahead of the first round of votes. But that possibility was discounted after Le Pen’s National Rally convincingly won the first round. Among its pledges, the left coalition wants to reverse seven years of pro-business reform and hike the minimum wage. 

    The Institut Montaigne estimates that the New Popular Front’s campaign pledges would require nearly €179 billion ($194 billion) in extra funds per year.

    France is already grappling with a budget deficit that at 5.5% far exceeds the 3% of economic output allowed under European Union rules. The International Monetary Fund predicts that — without further measures — debt would rise to 112% of economic output in 2024, and increase by about 1.5 percentage points a year over the medium-term.

    S&P Global Ratings downgraded France in late May, highlighting the French government’s missed goals in plans to restrain the budget deficit after huge spending during the Covid pandemic and energy crisis.

    Vincent Juvyns, global market strategist at J.P. Morgan Asset Management, said tensions were likely with reforms spearheaded by Macron now in doubt, potentially hurting the value of French bonds versus their peers.

    “Markets may demand a higher spread as long as the new government hasn’t clarified its fiscal position,” he said. “The European Commission and rating agencies are expecting 20 to 30 billions of cuts but the government will actually have to deal with a party which want to increase spending by 120 billion.”

    [ad_2]

    Alice Gledhill, Julien Ponthus, Bloomberg

    Source link

  • Amid election nerves French city traders rush to secure funding as they foresee the worst blow to bonds

    Amid election nerves French city traders rush to secure funding as they foresee the worst blow to bonds

    [ad_1]

    The worst bond rout since the sovereign debt crisis. Companies rushing to lock in funding before a potential capital drought. An almost $200 billion hit to stocks.

    French President Emmanuel Macron’s decision earlier this month to meet the far-right’s gains across Europe with a snap poll at home has upended markets across the region, triggering a sharp repricing that’s put billions of euros in flux.

    On Sunday, investors will find out if the selloff has room to run. 

    The stakes are high. France’s fiscal probity is in doubt with investors shorting the nation’s bonds even before Macron’s surprise decision, and the region’s allure as a stable and relatively volatility-free alternative to US markets has taken a blow.

    David Zahn, head of European fixed income at Franklin Templeton, summed it up: The French spread over German bonds could “easily” blow through 100 basis points from around 80 now — unthinkable less than a month ago.

    “There is nothing to win in this market,” said Stephane Deo, a senior portfolio manager at Eleva Capital SAS, who has cut all his fund’s exposure to France. 

    Traders are going into the parliamentary election at the weekend holding the most futures contracts on French bonds in at least a year, a sign they’re betting yields will go higher. Stock pickers are hedging losses with the most put options tied to Europe’s main blue-chip benchmark in two years. And currency traders are piling into derivatives that shield them from a drop in the euro at the fastest pace in 15 months.

    The main fear for markets of all stripes is that the new French government drives the country deeper into debt. France’s deficit already exceeds what’s allowed under European Union rules and a strong showing by either the right or the left would be viewed as increasing the chances that the government loosens the purse strings further. 

    S&P Global Ratings downgraded the country’s credit score at the end of May and the International Monetary Fund predicts its deficit will remain well above the EU’s 3% limit for years to come. 

    Pain for bonds can translate into pain for banks if they’re eventually forced to swoop in and buy up the notes should foreigners head for the exits. With French lenders already leading losses among euro-area banks in June, at that point the contagion could spiral beyond France’s borders, driving up borrowing costs in the EU’s weaker members.

    Memories of the region’s debt crisis are on investors’ minds, an Allianz Global Investors portfolio manager said recently, and ripples from France could once more bring the entire euro project into question.

    The last time Le Pen’s far-right party came close to clinching power was in the 2017 presidential election, promising voters a referendum on whether the country should leave the euro. While she’s tempered her stance since, her party’s policies have investors on edge.

    ‘Frexit’ Risk

    A gauge based on credit default swaps that indicates the likelihood of France leaving the EU has almost doubled since the European elections to near the highest since 2017. 

    The issue is “whether people want to go down the path of ruminating about redenomination,” said Erik Weisman, portfolio manager and chief economist at MFS Investment Management. “I think that would be unwarranted almost regardless of the outcome. But the market may have other ideas.”

    Political ructions in France are already casting a shadow over the broader region. 

    Weakness in French sovereign bonds has spilled over to Italy — Europe’s original poster child for fiscal profligacy. There, the spread to Germany has widened to the highest since February. 

    In credit markets, the risk premium French companies pay to borrow compared to their euro-area peers has jumped to the highest since the run-up to the 2017 election. Before the snap vote was called, that cost had been consistently lower.

    And trades in derivative markets that pay out if euro-area bank stocks decline have hit the highest since 2016.

    Banks are seen as vulnerable to concern about a nation’s political future through their holdings of government debt and their exposure to weak economic decisions. While sovereign bonds accounted for just 2.4% of French banks’ total assets as of the first quarter, that number could creep up if lenders step in to buy as foreign investors flee.

    ‘Existential Issue’

    “Market access is an existential issue for banks,” said Gordon Shannon, portfolio manager at TwentyFour Asset Management. “Periods of market stress curtail the ability to raise fresh capital.”

    To be sure, volatility triggered by elections can dissipate fast, and investors predict Le Pen’s party — if it does win the most seats — will tread carefully to boost her chances for the 2027 presidential vote. France’s CAC 40 stock benchmark has done well after most legislative elections in the past 30 years.

    Surveys indicate it’s unlikely any one party will have an absolute majority after the voting, and Former French President Francois Hollande indicated this week that he’d be ready to build a new coalition to govern if elections deliver a hung parliament.

    Karen Ward, chief market strategist for EMEA at J.P. Morgan Asset Management, sees the weakness in French banks as a buying opportunity. The next French government will be mindful of the chaos triggered by unfunded tax cuts proposed by UK prime minister Liz Truss in 2022.

    “In a couple of months’ time we will not be talking about French politics at all,” she said. “This is not 2011-2012, none of these more populous parties are advocating leaving the euro. This is about migration, which is a thread we are seeing in politics across the west.”

    Yet the sense of angst is palpable. The spike in political risk has prompted several portfolio managers to abandon the practice of buying European bonds in anticipation of a catch-up with valuations in US debt.

    That chimes with the shift in equity-market sentiment, where uncertainty before Sunday’s vote has derailed the bull case for Europe, pushing investors to trim exposure and rebalance their positioning toward US assets. 

    And rates traders are expecting the nation’s borrowing costs to remain high for the foreseeable future.

    “The French spread won’t go back to its pre-election level anytime soon,” said Sonia Renoult, a rates strategist at ABN Amro. “The question is how quickly it pulls back and whether the bond market or institutions need to force it to do so.”

    [ad_2]

    Alice Gledhill, Michael Msika, Tasos Vossos, Bloomberg

    Source link