Eurogroup’s Donohoe Says Markets Can React Fast to Fiscal Jolts

(Bloomberg) -- Investors can react rapidly if governments make abrupt changes to their fiscal trajectory, Eurogroup President Paschal Donohoe said.

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While declining to comment specifically on France when asked in a Bloomberg TV interview, the Irish official also said it’s not uncommon for politicians to voice a range of goals in the runup to European Union budget negotiations.

“We have learned that when domestic decisions are made, financial markets can respond back quickly,” he said Friday in Aix-en-Provence. “The general clear learning that we have in recent years is about the importance of maintaining market confidence and the importance of maintaining confidence in your future spending and taxation plans.”

He added that “all governments are aware of that.”

France’s snap elections have heightened concern about the path for the country’s public finances, with the European Commission having issued a budget-deficit reprimand even before the door opened to a government led by Marine Le Pen’s far-right National Rally.

While her party looks set to fall short of a majority on Sunday and bond-market pressure has eased somewhat as a result, a gridlocked parliament may struggle to address France’s spending and debt — pointing to further friction with Brussels.

Such upheaval has sparked a discussion on whether the European Central Bank may need to step in at some point to calm investors, though officials in Frankfurt say developments are far from warranting such action.

“I know the ECB will monitor the situation and always be inside their mandate as they have clearly demonstrated,” Donohoe said.

Asked whether Le Pen can be compared to Italian Prime Minister Giorgia Meloni, he said the latter’s experience is “instructive” in many ways.

“Meloni has come into office and made some very, very important — and I believe, right — decisions on behalf of Italy, on behalf of Europe and we have a very constructive economic relationship,” Donohoe said.

“That is another reason why I am reminded of the value of letting the election come to an end and when the government is appointed hearing from them and doing all we can to have a good cooperative relationship,” he said.

--With assistance from Max Ramsay and William Horobin.

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