Macron’s high-risk election puts France’s economy on the line

POLITICO has published an article suggesting that the growing influence of far-right movements is unsettling financial markets and potentially worsening France's debt situation.

French President Emmanuel Macron isn’t just staking his political life with his call for a snap election. He is also taking a massive gamble with the French economy.

Financial markets are shivering in horror at the prospect of the far-right National Rally gaining more power in the eurozone’s second-biggest economy —  a scenario that could stall work in parliament and blow even bigger holes in France’s already overstretched budget via a populist spending bonanza.

After Macron called the election on Sunday, the tremors were instant. The euro fell for two days in a row against the dollar, the CAC 40 stock market index in Paris lost some 3 per cent, and the yield on the benchmark 10-year government bond, a barometer of economic and political risk, spiked to new highs for the year. 

Earlier this month, France had already suffered a downgrade in its creditworthiness from the Standard & Poor’s rating agency, which pointed to political fragmentation as a danger. While France is not yet sinking into the same risk category as debt-laden Italy, bond buyers do now see French debt as an investment of a similar risk to Portugal’s. 

In a press conference on Wednesday, Macron was quick to seize on the alarm in the markets as a signal that voters should mobilize against the National Rally.

National Rally’s chief economic goals include reducing the pension age from 64 to 60 and totally unravelling one of Macron’s landmark economic reforms. 

Macron’s maverick call for an election doesn’t just raise the spectre of trouble on the home front. France is already one of the bad boys when it comes to EU deficit rules, and the political chaos sets up even more tensions with Brussels. 

After spending its way through the pandemic and the energy crisis, France is now having to tighten its belt. Paris is cutting €20 billion of public spending this year and is planning to cut at least €20 billion more in 2025.

The National Rally has repeatedly opposed Macron’s controversial pension reform and other spending cuts proposed by Finance Minister Le Maire. When Macron raised the retirement age for most workers to 64 from 62 last year, the National Rally's Marine Le Pen had campaigned for it to be cut to 60 for some categories of workers.

A National Rally government that butts heads with the European Commission could find itself in a more precarious place under the EDP.

But a National Rally government set on a radical change of policy would soon run into external constraints "that are difficult to get around,” in the shape of financial markets and the EU, said Francesco Saraceno, deputy head of the French Observatory of Economic Cycles at Sciences Po Paris.

Now even far-right rising star Bardella is starting to realize that Le Pen’s expensive proposals could undermine the party’s credibility and hinted that he could backtrack, for instance on pensions.

"Economically, I'm reasonable," he promised.