PARIS: The promises are attractive and expensive. Competing to overthrow the centrist presidential government Emmanuel Macron in the upcoming two-round parliamentary elections on June 30 and July 7, French political parties on the right and left have vowed to cut gasoline taxes, allow workers to retire earlier and raise wages.
That campaign promise threatens to deflate the already bloated government budgetpush up French interest rates and strain France’s relationship with European Union.
“Snap elections could replace Macron’s limping centrist government with one led by a party whose campaign has abandoned any pretense of fiscal discipline,” economist Brigitte Granville of Queen Mary University of London said Thursday on the Project Syndicate website.
Turbulence began on June 9 when voters surrendered Macron defeat at the hands of the National Rally party hard right Marine Le Pen in the EU parliamentary elections.
Macron quickly and surprisingly called a snap parliamentary election, confident that French voters would turn out in droves to prevent a far-right government from taking power in France for the first time since the Nazi occupation in World War II.
Macron is aligned with Le Pen’s National Rally and the New Popular Front, a coalition of far-to-center-left parties.
“The center has evaporated,” said French economist Nicolas Veron, a senior fellow at the Peterson Institute for International Economics. The National Rally and the New Popular Front are “radical in different ways, but both are far from mainstream.”
Political extremes benefit from widespread voter discontent over painful price rises, household budgets and other hardships. France’s economy is on the mend: The International Monetary Fund expects growth to be a weak 0.7 percent this year, down from an unimpressive 0.9 percent in 2023.
Political promises to put money in voters’ pockets send economists calling for calculators. The answer: The cost can be expensive, at least tens of billions of euros.
News of the political escalation of the National Rally sent France’s CAC 40 stock index down to its worst week in more than two years, although markets calmed slightly last week. French government bond yields also rose on concerns about potential strains on government finances.
Macron acknowledged that the National Rally’s economic promises “might make people happy,” but said it would cost 100 billion euros ($107 billion) a year. And the left’s plan, he said, is “four times worse in terms of cost.”
Jordan Bardella, president of the National Rally gunning to become prime minister of France in the Election, poo-poos figures cited by Macron, said it was “pulled out of the hat of the government.” But Bardella has not clarified how much his party plan will cost or how it will be paid for.
In addition, the New Popular Front’s 23-page list of campaign promises did not list expenses or detail how they were financed. But the coalition vowed to “remove the privileges of billionaires,” taxing high earners, fortunes and other wealth more heavily. He said he did not want to increase France’s debt.
Left-wing leader Jean-Luc Melenchon, whose French party Unbowed is fielding the most candidates in the coalition, said his platform would require 200 billion euros ($214 billion) in public spending over five years but would generate 230 billion euros ($246). billion) in revenue by stimulating the French economy.
Bardella promised to reduce the sales tax from 20 to 5.5 percent for fuel, electricity and gas, “because I think there are millions of French people in our country who this year can no longer heat or are forced to limit their travel.”
The Paris-based think tank Montaigne Institute estimates the cost of the pledge at between 9 billion and 13.6 billion euros ($9.6 billion to $14.5 billion) per year in lost revenue. France’s finance ministry estimates that public coffers are even bigger: 16.8 billion euros ($18 billion) a year.
On the left, the New Popular Front has pledged to freeze the prices of essential goods, fuel, energy and food, as part of a package to help some of France’s poorest people.
It also promised an increase in the minimum wage, increasing it by 200 euros ($214) to 1,600 euros ($1,711) a month. The Montaigne Institute said the two pledges could result in an annual hit of between 12.5 billion euros ($13.4 billion) and 41.5 billion euros ($44.4 billion) to public finances. It also warns that rising wages can harm the economy and jobs by making labor more expensive.
Both left and right promised to restore the pension reform that Macron railroaded through parliament last year in the face of large-scale street protests, raising the retirement age from 62 to 64 to help finance the pension system.
Doing so risks reopening the political question of how France can continue to fund pensions as its population ages.
Even before the latest political turmoil, France was already under pressure to do something about its unbalanced government budget. EU watchdog criticizes France for high debt France already operates with a higher debt burden than its European neighbors, with public debt at about 112 percent of the size of the economy. That compares to less than 90 percent for the euro zone as a whole and just 63 percent for Germany.
The EU has long insisted that member states keep annual deficits below 3 percent of gross domestic product. But these targets are often overlooked, even by Germany and France, the EU’s largest economies.
France’s deficit last year was at 5.5 percent. The EU Commission has recommended that France and six other countries start an “excessive deficit procedure,” which begins a lengthy process that could force countries to take corrective action.
The upcoming elections are for the lower house of the French parliament, the national assembly. Macron will remain president until 2027 even if his party loses, which may require an awkward “cohabitation” with the National Rally on the right or the New Popular Front on the left.
Macron, who is seeking to rein in France’s budget deficit, will reduce it significantly. economic policy, although he will still oversee foreign and defense policy. With left-wing or right-wing governments pursuing economic policies, the country’s budget problems may not be resolved, leading to higher yields on French bonds.
The nightmare scenario would be a repeat of what happened in the UK in September 2022 when Prime Minister Liz Truss rocked the financial markets after proposing a wave of tax cuts without spending to balance them. The Truss plan immediately sent the value of the British pound and British government bonds plummeting. The Bank of England eventually had to step in to stabilize financial markets, while Truss quit after just 45 days.
The same thing happens if a right-wing or left-wing French government chooses to ignore EU budget rules and spend on spending that causes French bonds to collapse and interest rates higher. The European Central Bank may be forced to buy French bonds to produce cheaper and calmer markets.
“The ECB will be reluctant to come to the rescue of France itself unless and until any future government puts in place a credible plan to bring the deficit down,” Andrew Kenningham, chief European economist for Capital Economics, wrote on Friday. “But if yields rise out of control, they may be forced to step in, like the Bank of England.”
That campaign promise threatens to deflate the already bloated government budgetpush up French interest rates and strain France’s relationship with European Union.
“Snap elections could replace Macron’s limping centrist government with one led by a party whose campaign has abandoned any pretense of fiscal discipline,” economist Brigitte Granville of Queen Mary University of London said Thursday on the Project Syndicate website.
Turbulence began on June 9 when voters surrendered Macron defeat at the hands of the National Rally party hard right Marine Le Pen in the EU parliamentary elections.
Macron quickly and surprisingly called a snap parliamentary election, confident that French voters would turn out in droves to prevent a far-right government from taking power in France for the first time since the Nazi occupation in World War II.
Macron is aligned with Le Pen’s National Rally and the New Popular Front, a coalition of far-to-center-left parties.
“The center has evaporated,” said French economist Nicolas Veron, a senior fellow at the Peterson Institute for International Economics. The National Rally and the New Popular Front are “radical in different ways, but both are far from mainstream.”
Political extremes benefit from widespread voter discontent over painful price rises, household budgets and other hardships. France’s economy is on the mend: The International Monetary Fund expects growth to be a weak 0.7 percent this year, down from an unimpressive 0.9 percent in 2023.
Political promises to put money in voters’ pockets send economists calling for calculators. The answer: The cost can be expensive, at least tens of billions of euros.
News of the political escalation of the National Rally sent France’s CAC 40 stock index down to its worst week in more than two years, although markets calmed slightly last week. French government bond yields also rose on concerns about potential strains on government finances.
Macron acknowledged that the National Rally’s economic promises “might make people happy,” but said it would cost 100 billion euros ($107 billion) a year. And the left’s plan, he said, is “four times worse in terms of cost.”
Jordan Bardella, president of the National Rally gunning to become prime minister of France in the Election, poo-poos figures cited by Macron, said it was “pulled out of the hat of the government.” But Bardella has not clarified how much his party plan will cost or how it will be paid for.
In addition, the New Popular Front’s 23-page list of campaign promises did not list expenses or detail how they were financed. But the coalition vowed to “remove the privileges of billionaires,” taxing high earners, fortunes and other wealth more heavily. He said he did not want to increase France’s debt.
Left-wing leader Jean-Luc Melenchon, whose French party Unbowed is fielding the most candidates in the coalition, said his platform would require 200 billion euros ($214 billion) in public spending over five years but would generate 230 billion euros ($246). billion) in revenue by stimulating the French economy.
Bardella promised to reduce the sales tax from 20 to 5.5 percent for fuel, electricity and gas, “because I think there are millions of French people in our country who this year can no longer heat or are forced to limit their travel.”
The Paris-based think tank Montaigne Institute estimates the cost of the pledge at between 9 billion and 13.6 billion euros ($9.6 billion to $14.5 billion) per year in lost revenue. France’s finance ministry estimates that public coffers are even bigger: 16.8 billion euros ($18 billion) a year.
On the left, the New Popular Front has pledged to freeze the prices of essential goods, fuel, energy and food, as part of a package to help some of France’s poorest people.
It also promised an increase in the minimum wage, increasing it by 200 euros ($214) to 1,600 euros ($1,711) a month. The Montaigne Institute said the two pledges could result in an annual hit of between 12.5 billion euros ($13.4 billion) and 41.5 billion euros ($44.4 billion) to public finances. It also warns that rising wages can harm the economy and jobs by making labor more expensive.
Both left and right promised to restore the pension reform that Macron railroaded through parliament last year in the face of large-scale street protests, raising the retirement age from 62 to 64 to help finance the pension system.
Doing so risks reopening the political question of how France can continue to fund pensions as its population ages.
Even before the latest political turmoil, France was already under pressure to do something about its unbalanced government budget. EU watchdog criticizes France for high debt France already operates with a higher debt burden than its European neighbors, with public debt at about 112 percent of the size of the economy. That compares to less than 90 percent for the euro zone as a whole and just 63 percent for Germany.
The EU has long insisted that member states keep annual deficits below 3 percent of gross domestic product. But these targets are often overlooked, even by Germany and France, the EU’s largest economies.
France’s deficit last year was at 5.5 percent. The EU Commission has recommended that France and six other countries start an “excessive deficit procedure,” which begins a lengthy process that could force countries to take corrective action.
The upcoming elections are for the lower house of the French parliament, the national assembly. Macron will remain president until 2027 even if his party loses, which may require an awkward “cohabitation” with the National Rally on the right or the New Popular Front on the left.
Macron, who is seeking to rein in France’s budget deficit, will reduce it significantly. economic policy, although he will still oversee foreign and defense policy. With left-wing or right-wing governments pursuing economic policies, the country’s budget problems may not be resolved, leading to higher yields on French bonds.
The nightmare scenario would be a repeat of what happened in the UK in September 2022 when Prime Minister Liz Truss rocked the financial markets after proposing a wave of tax cuts without spending to balance them. The Truss plan immediately sent the value of the British pound and British government bonds plummeting. The Bank of England eventually had to step in to stabilize financial markets, while Truss quit after just 45 days.
The same thing happens if a right-wing or left-wing French government chooses to ignore EU budget rules and spend on spending that causes French bonds to collapse and interest rates higher. The European Central Bank may be forced to buy French bonds to produce cheaper and calmer markets.
“The ECB will be reluctant to come to the rescue of France itself unless and until any future government puts in place a credible plan to bring the deficit down,” Andrew Kenningham, chief European economist for Capital Economics, wrote on Friday. “But if yields rise out of control, they may be forced to step in, like the Bank of England.”
