This is an audio transcript of the FT News Briefing podcast episode: ‘Italian and French bonds meet in the middle’
Sonja Hutson
Good morning from the Financial Times. Today is Tuesday, August 19th, and this is your FT News Briefing. Donald Trump is floating security guarantees for Ukraine. And US tariffs are pushing India closer to China. Plus, French bonds are slipping down to Italy’s level.
Leila Abboud
The market basically telling you that they’re starting to see these two countries as of similar risk profiles is just a real moment to take stock of.
Sonja Hutson
I’m Sonja Hutson, and here’s the news you need to start your day.
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US President Donald Trump met with Ukrainian President Volodymyr Zelenskyy yesterday.
Audio clip of Donald Trump
Well, thank you very much. It’s an honour to have the president of Ukraine with us.
Sonja Hutson
Trump also met with officials from several European countries. He suggested that US security guarantees for Ukraine are on the table as part of a potential peace agreement.
Audio clip of Donald Trump
They are the first line of defence because they’re there. They’re Europe. But we’re gonna help them out also. There’s gonna be a lot of help.
Sonja Hutson
The Financial Times has also learned that as part of a security guarantee deal, Ukraine will offer to buy a hundred billion dollars of American weapons. They’d be financed by Europe. When asked what kind of security guarantees Zelenskyy would need to make a deal, he said . . .
Audio clip of Volodymyr Zelenskyy
Everything. And really, it includes two parts. First strong Ukrainian army and it’s a lot about weapon and then people and training missions and intelligence. And second, we will discuss with our partners.
Sonja Hutson
And Trump may try to arrange a trilateral meeting with Zelenskyy and Russian President Vladimir Putin.
Audio clip of Donald Trump
If we don’t have a trilat, then the fighting continues, and if we do, we have a good chance. I think if we have a trilat, there’s a good chance of maybe ending it.
Sonja Hutson
Trump said he’d call Putin after yesterday’s meetings.
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Indian Prime Minister Narendra Modi is under a ton of pressure to find new trading partners. That’s because the US has hit India with massive tariffs. And China might be a surprise option for India. The two countries have a disputed border, and there was a deadly clash there in 2020. But China’s foreign minister Wang Yi is on a two-day visit to India, and it could be a sign that diplomatic relations are thawing.
I’m joined by the FT’s Mumbai correspondent Krishn Kaushik to discuss this. Hi, Christian.
Krishn Kaushik
Hi.
Sonja Hutson
So how significant is this visit by Wang Yi?
Krishn Kaushik
It’s definitely quite significant because since border skirmishes in 2020, there have been very, very few high-level visits between India and China. So Wang Yi has met his Indian counterparts in different locations. But now he’s coming here to continue with the discussions about resolving the border issue because the border still remains largely undemarcated.
And it comes at a very crucial point because US has announced up to 50 per cent tariffs on India, which is the highest in the world along with Brazil. So a visit from Wang Yi can provide some relief to India. Not in terms of finding a new market for Indian goods, potentially, but definitely in terms of what it can get from China.
Sonja Hutson
Now, Krishn, I mentioned that Modi is under a lot of pressure because of Trump’s decision to raise tariffs. Could you tell us a little bit more about that?
Krishn Kaushik
Absolutely, see it’s quite important to underline here that US is India’s largest trading partner. The trade surplus between India and US is $40bn, favouring India. So now with the 50 per cent tariffs, almost all other peers of India have much cheaper rate of tariffs, and those exports will directly be hit, sectors like textiles and car products.
Industry leaders have told us that their clients in the US are already threatening to go to some other geographies. This creates a lot of pressure on Modi because a lot of these sectors are driven by small and medium enterprises. They are the main drivers of employment and job creation in the country. And if these sectors come under pressure, that really threatens Modi’s hold over the narrative about how well India is doing.
Sonja Hutson
And how has Modi responded to that threat?
Krishn Kaushik
So at the end of last week, he announced that first thing that his government is planning to do is to simplify the goods and services tax. He’s also said we need to cut red tape. He’s of course, in his own style, announced that he will be a dam against any attacks on Indian industry. But then he has to provide direct capital support to many of these industries if the 50 per cent tax, the tariff rate, comes into effect.
Sonja Hutson
So do you think that China then could provide that kind of support that Modi’s looking for?
Krishn Kaushik
What has also happened since the border skirmishes, India has largely blocked almost any direct funding from China for the Indian industry, and visas have largely been frozen. India’s not getting skilled labour. India’s not getting the technology. If these discussions continue to mark further thaw, India can allow some of those things.
Maybe not in the critical sectors, but some other sectors. So Indian industry definitely needs more Chinese technology for efficiency, and that could start flowing in along with some Chinese funding for the Indian industry. Even for domestic consumption, you have to improve your manufacturing. And what the industry leaders, the lobby groups are saying, that one thing that might help at this stage would be direct capital infusion.
Sonja Hutson
Krishn Kaushik is the FT’s correspondent in Mumbai. Thanks, Krishn.
Krishn Kaushik
Thank you.
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Sonja Hutson
SoftBank has agreed to invest $2bn into Intel. The Japanese conglomerate’s investment adds up to a 2 per cent stake in the company. And it’ll be a big boost to the struggling US chipmaker. The Trump administration is also considering investing in it. Intel shares rose 5 per cent in after-hours trading.
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France’s borrowing costs are way up. A sell-off of 10-year bonds has sent yields to just about the highest they’ve been in more than a decade. Meanwhile, Italy is seeing bond prices stabilise. The spread between borrowing costs in both countries is now closer than at any point since the financial crisis.
Here to tell us why this milestone is so important is the FT’s Leila Abboud in Paris. Hi, Leila.
Leila Abboud
Hello.
Sonja Hutson
So, Leila, why is it worth comparing these two countries to begin with?
Leila Abboud
They’re both coming from very different places. I mean, if you think back to the financial crisis, the countries on Europe’s southern periphery were considered the least reliable debt payers. There’s obviously Greece that went into full-blown crisis and had to be rescued. Italy never got to that point, but it’s chronically been a country because of the nature of its economy. And just its political culture has had high government borrowings and an economy that wasn’t always robust enough to support it.
And France is, you know, the second-biggest economy in the Eurozone. So they’re just coming from very different places in terms of how investors view them and to see the bond yields converging, which is the market, basically telling you that they’re starting to see these two countries as of similar risk profiles, is just a real moment to take stock of.
Sonja Hutson
OK, well, let’s look at the financial situation in each country then. What is Italy getting right?
Leila Abboud
First of all, they’ve had a period of political stability, which is long for, you know, Italy contacts where the governments can fall relatively frequently. Giorgia Meloni has a three-part, you know, coalition that has pretty much done what they said they were gonna do on the economy.
They’ve also just kind of gotten religion on controlling their deficits in a way that they probably didn’t in the past. They’ve managed to stabilise their deficit, which is still high as a percentage of GDP, but what the market cares about is the trend, right, and the fact that it’s not going up and that it’s forecast to stabilise in the coming year or so. But again, it’s the trend that counts. France is going up and Italy is going down.
Sonja Hutson
OK, so what’s going wrong with France’s fiscal situation?
Leila Abboud
There’s a culture of spending a lot. The social welfare programs account for more than half, I think, of the government outweighs. And that goes to pensions, unemployment, the healthcare system.
But there was also just kind of, I think it’s a trillion added to the debt since 2019 or so. Some of that is Covid spending. But what the French did, unlike their neighbours, they kept spending pretty heavily to subsidise the economy. During the energy crisis they, you know, provided a lot of support and price controls both to households and business, which just cost a lot of money.
I also think something happened last year, obviously on the political front. Emmanuel Macron called early elections and ushered in a parliament that was even more broken and dysfunctional than the previous one. And his party and his centralist alliance they no longer have a majority in order to get anything done in parliament.
Sonja Hutson
And are French politicians doing anything now to try to get their fiscal house in order?
Leila Abboud
Yeah, of course. The French prime minister, whose name is François Bayrou, has been working on a draft proposal, which he outlined before the summer break. That includes about 40bn worth of fiscal effort, which is gonna include tax increases and spending cuts.
The only problem is that he really doesn’t have the power to get this done. There’s a real risk that his government will fall over this budget because the centrist alliance behind him and Emmanuel Macron simply do not have the votes in parliament to pass a budget, which then puts them at the mercy of the opposition.
Sonja Hutson
Leila, I wanna go back to the narrowing bond spreads that we’re seeing between France and Italy. What does that tell you about Europe’s wider fiscal trends?
Leila Abboud
That the old framework of this Pigs’ acronym we used to have that referred to Portugal, Italy, Greece, and Spain as kind of the bad students in the class on deficits and debt. It just really doesn’t apply anymore. The Pigs aren’t really Pigs anymore and France is sort of the new Pig. What metaphor to use in there. But the French fiscal situation is quite bad. And just because the bond investors have not panicked yet their yields are up. But this is not a dramatic freak out. But bond markets tend to move quickly when they decide to move, and it’s pretty unpredictable.
Sonja Hutson
Leila Abboud is the FT’s Paris bureau chief. Thanks, Leila.
Leila Abboud
Thank you.
Sonja Hutson
Soho House is leaving the public market. The once edgy London members club has agreed to a $2.7bn deal to be taken private. It’ll be owned by MCR Hotels, which is one of the biggest US hotel owners. Soho House said MCR Hotels would buy out its remaining public shareholders at $9 a share. That’s higher than the stock price at the close on Friday, but still way below the $14 price tag when Soho House floated back in 2021.
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You can read more on all these stories for free when you click the links in our show notes. This has been your daily FT News Briefing. Check back tomorrow for the latest business news.