The Economic Front
The current French situation feels different from previous Eurozone crises. The key is distinguishing between exit risk (leaving the Euro) and exit capacity (the inability to manage the debt within the Euro). The Hybrid Economics Debate Framed For An Informed Audience: 1. What is Hybrid Economics? The term originated in a Substack newsletter (Half Macro Half Climate) by independent analysts Nev and Grant. "Hybrid" refers to their blend of macroeconomics and climate economics (not hybrid warfare) however, the comparison with hybrid war is astute, because their argument reveals a structural mechanism that functions like coercion. Their argument is that the recent widening of the 2-year France-Germany bond spread (from ~25bps to ~80bps) is not just about default risk. In a currency union, short-term bonds are supposed to be nearly risk-free. If markets are pricing in an 80bps spread, they are effectively pricing in a probability of France leaving the Euro. Why 2-year? Because a ...