"You would agree, would you not, that we have picked up some enduring credibility, notwithstanding your initial remarks, as a consequence of the introduction of a fiscal plan a little over two years ago, and that this is reflected in the differential between long-run debt service costs in the UK and in other countries?
"I am very struck by the fact that you are not prepared to give the Government any credit at all on a 300 basis point difference between UK policy now versus Italy, and two years ago. That seems extraordinary to me....You seem to be extraordinarily unwilling to give any credit or credibility".
"I think the principal driver of why our rates are low compared to some other countries-and it is partly a relative game-is because of the credibility of the UK fiscal policy."
Well, that's pretty clear isn't it? French yields fell sharply at the time of M. Holland's election and the subsequent few months, and have been stable since. Gilt yields fell in the first half of the year, but have risen somewhat since. So spreads between the two have fallen quite sharply - from more than 50 basis points before the election to close to zero now.
Obviously, this convergence must reflect the fact that, subsequent to M. Hollande's election, French fiscal policy (and economic policy more generally) is now much more credible (and just as "credible" than that of the UK). Mr Tyrie, Mr Norman and the Chancellor must surely agree - as Mr Norman would put it, it would be simply "extraordinary" not to.
Of course this would be utter nonsense. French yields have decreased relative to gilt yields because French economic prospects have got worse since M. Hollande's election; meanwhile, the UK's, while not significantly better than then, haven't worsened further (see here). Indeed the recent uptick in gilt yields probably reflects some (cautious) optimism among market participants; good news, as I pointed out some time ago. This is entirely consistent with the theory and evidence set out in the first paragraph above and in my other articles. [Note that this may not last - as has frequently been pointed out, if things get even worse, France, which does not borrow in its own currency and does not have its own central bank, is potentially vulnerable to a bond market run, unlike the UK].
There is a separate debate about exactly why things have got worse in France and the extent to which M. Hollande is to blame. Personally, while much of it is due to events which were already in train prior to his election (in particular self-defeating austerity in Europe), I would also argue that he has made a number of serious economic mistakes; what France needed was a government that would slow or reverse austerity (in France and Europe) while accelerating structural reform (of labour markets and public services). Sadly, very much as in Spain, this is not what is happening; if anything the reverse is true.
But you don't have to agree with this particular view of France's economic conjuncture to see that anybody who really believes in the "credibility" argument must think France is doing something very right, at least relative to the UK.