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The week since Emmanuel Macron called snap elections has laid bare just how high the stakes are, not just for him and the future of France’s democracy but for its prosperity too. With the president’s centrist alliance trailing badly in the polls, the front-running groups from the radical right and the leftwing are both touting populist and mostly uncosted economic policies that risk exploding France’s budget deficit and debt. In a worst-case scenario, they threaten to put Paris into conflict with the EU, and trigger a market crisis with consequences across the Eurozone.
Despite Macron’s achievements in bringing unemployment down to its lowest level in almost two decades, making France an attractive place for businesses to invest, and reforming pensions, his record on public finances is not his strongest suit. Like its neighbours, France had to grapple with Covid, inflation, and Russia’s invasion of Ukraine. Macron’s governments, though, have not been serious enough about putting public finances in order. France’s budget deficit last year was 5.5 per cent of gross domestic product, with public debt at 110 per cent of GDP.
But both Marine Le Pen’s far-right Rassemblement National and the leftwing New Popular Front assembled to challenge it are now promising a dangerous mix of largely fantasy economics that France can ill-afford. The risk is that the national assembly will be dominated by blocs that are both in favour of huge spending increases, and ready to rip up France’s commitments to Brussels on deficits and debts.
With the RN leading in the polls, it is unclear exactly how much it will retain this time of its programme from the 2022 presidential election, which was estimated by the Institut Montaigne think-tank would worsen the deficit by €100bn, or 3.7 of GDP, per year. Its leaders Le Pen and Jordan Bardella have adopted a pragmatic tone, saying they will have to prioritise certain measures depending on their fiscal room.
Asked last week if an RN government would keep its costly promise to reverse Macron’s increase in the pension age to 64, Bardella said only “We’ll see”. It will, though, proceed with cuts to VAT on energy, fuel and food. These steps alone would blow a large hole in the budget, and the RN has presented no significant revenue-raising plans.
The leftwing alliance encompassing the hard left, Socialists and Greens has unveiled a radical agenda with vast spending commitments, including scrapping Macron’s pension reform and increasing public sector salaries. It is promising some revenue-raising steps, including reintroducing a wealth tax and ending tax breaks that often favour the upper middle class. But it is fanciful to think a programme on this scale can be financed only by squeezing the rich.
The danger for France is that its fiscal outlook is already cloudy; Standard & Poor’s downgraded its debt last month. Either programme would be likely to provoke the first clash with the EU since it adopted new fiscal rules. Unlike the Eurozone debt crisis, however, it would involve the EU’s second-biggest economy, and a founding state.
Despite a sell-off in the past week taking spreads over German bonds to their highest since 2012, French bonds are still in high demand, and in a worst-case scenario the European Central Bank has a new backstop of emergency bond-buying powers. A senior ECB official on Monday played down any need to activate these. But there is a worrying lack of awareness of the dangers along France’s political flanks and in the country at large. Macron’s alliance is citing parallels with the debacle triggered by former UK premier Liz Truss’s unfunded tax cuts in 2022, in an effort to awaken voters to the risks. Regrettably, its arguments do not seem to be cutting through.
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