Paris: Promises are tempting and costly. The race to oust the president’s centrist government Emmanuel Macron In the upcoming two-stage parliamentary elections on June 30 and July 7, both French political parties, both right-wing and left-wing, are vowing to cut gasoline taxes, let workers retire earlier and raise wages.
His election promises threaten to exacerbate an already bloated atmosphere. Government budgetFrench raise interest rates and escalate tensions Francerelations with European Union,
“A snap election could replace Macron’s faltering centrist government with one led by parties whose campaigns have abandoned any pretense of fiscal discipline,” Brigitte Granville, an economist at Queen Mary University of London, wrote on the Project Syndicate website on Thursday.
The unrest began on June 9 when voters long mark Defeat in the EU parliamentary elections at the hands of Marine Le Pen’s far-right National Rally party.
Macron immediately and surprisingly announced early parliamentary elections, confident that French voters would unite to prevent the first far-right government from coming to power in France since the Nazi occupation in World War II.
Macron is up against both Le Pen’s National Rally and the New Popular Front, a coalition of centre-left parties.
“The center has kind of disappeared,” said French economist Nicolas Véron, a senior fellow at the Peterson Institute for International Economics. The National Rally and the New Popular Front “are radical in very different ways, but they’re both very far from the mainstream.”
Political extremists are benefiting from widespread voter discontent about painful price hikes, household budget shortfalls and other hardships. France’s economy is faltering: The International Monetary Fund expects it to achieve a weak 0.7 percent growth this year, down to a dismal 0.9 percent in 2023.
Political promises to put money in voters’ pockets drove economists to the calculators. Their answer: the cost could be very high, at least tens of billions of euros.
News of the National Rally’s political rise pushed France’s CAC 40 stock index to its worst week in more than two years, though markets calmed somewhat last week. Yields on French government bonds also rose on concerns about potential pressure on government finances.
Macron acknowledged the National Rally’s economic pledges “could probably make people happy,” but claimed they would cost 100 billion euros ($107 billion) annually. And he charged that the left’s plans were “four times worse in terms of costs.”
Jordan Bardella, president of the National Rally, which is running to become French prime minister, rejected the figure cited by Macron, saying it was “a figure derived from the government.” But Bardella has not yet said how much his party’s plans would cost or how they would be paid for.
Similarly, the New Popular Front’s 23-page list of campaign pledges details neither their cost nor how they would be financed. But the coalition has vowed to “end the privileges of billionaires”, impose higher taxes on high-income earners, the wealthy and other assets. It has said it does not intend to add to France’s debts.
Far-left leader Jean-Luc Mélenchon, whose France Unbowed party is fielding the most candidates in the coalition, says his platform would require public spending of 200 billion euros ($214 billion) over five years but would generate revenue of 230 billion euros ($246 billion) by stimulating France’s economy.
Bardella also pledged to reduce the sales tax on fuel, electricity and gas from 20 percent to 5.5 percent, “because I think there are millions of French people in our country who cannot afford heating this year or are forced to limit their trips.”
The Paris-based Institut Montaigne think tank estimates that the promise would cost between 9 billion and 13.6 billion euros ($9.6 billion to $14.5 billion) in lost revenue each year. France’s finance ministry estimates the loss to the state treasury would be even worse: 16.8 billion euros ($18 billion) each year.
On the left, the New Popular Front has pledged to keep prices of essential goods, fuel, energy and food stable as part of a package to help France’s poorest.
It is also promising a significant increase in the minimum wage, raising it by 200 euros ($214) to 1,600 euros ($1,711) net monthly. The Institut Montaigne says the two promises could have a hit on public finances of between 12.5 billion euros ($13.4 billion) and 41.5 billion euros ($44.4 billion) annually. It also warns the pay hike could hurt the economy and jobs by making labour more expensive.
Both left-wing and right-wing parties have vowed to roll back pension reforms that Macron pushed through parliament last year despite massive street protests, and raise the retirement age from 62 to 64 to help finance the pension system.
Doing so risks resurfacing the politically divisive question of how France can provide enough money for pensions among its ageing population.
Even before the recent political upheaval, France was under pressure to do something about its unbalanced government budget. EU watchdogs have criticised France for taking on too much debt. France is already dealing with a higher debt load than most European neighbours, with public debt at around 112 per cent of the size of its economy. That compares to just under 90 per cent for the eurozone and just 63 per cent for Germany.
The EU has long insisted that member countries keep their annual deficits below 3 percent of GDP. But these targets have often been ignored, even by the EU’s largest economies, Germany and France.
France’s deficit was 5.5 percent last year. The EU Commission has recommended that France and six other countries begin an “excessive deficit procedure,” the start of a lengthy process that can eventually force a country to take corrective action.
The upcoming election is for the National Assembly, the lower house of France’s parliament. Macron will remain president until 2027 even if his party loses, which could require an awkward “cohabitation” with the far-right National Rally or the left’s New Popular Front.
Macron, who has sought to rein in France’s budget deficit, would have much less influence. economic policyHowever, they will still oversee foreign and defense policy. Whether a left-wing or right-wing government decides on economic policy, the country’s budget problems will likely remain unresolved, leading to higher yields on French bonds.
The nightmare scenario would be a repeat of what happened to the United Kingdom in September 2022, when then-Prime Minister Liz Truss scared financial markets by proposing a wave of tax cuts while offering no spending to offset them. Truss’s plan immediately caused the values of the British pound and UK government bonds to plummet. The Bank of England eventually had to step in to stabilize financial markets, while Truss stepped down after only 45 days in office.
Something similar could happen if a right-wing or left-wing French government ignores EU budget rules and spends recklessly, causing French bonds to fall and interest rates to rise. The European Central Bank might then be forced to buy French bonds to lower yields and calm the markets.
“Unless a future government lays out a credible plan to reduce the deficit, the ECB will remain reluctant to help France,” Andrew Kenningham, chief Europe economist at Capital Economics, wrote on Thursday. “But if yields continue to spiral out of control, it too may be forced to intervene, as the Bank of England did.”
His election promises threaten to exacerbate an already bloated atmosphere. Government budgetFrench raise interest rates and escalate tensions Francerelations with European Union,
“A snap election could replace Macron’s faltering centrist government with one led by parties whose campaigns have abandoned any pretense of fiscal discipline,” Brigitte Granville, an economist at Queen Mary University of London, wrote on the Project Syndicate website on Thursday.
The unrest began on June 9 when voters long mark Defeat in the EU parliamentary elections at the hands of Marine Le Pen’s far-right National Rally party.
Macron immediately and surprisingly announced early parliamentary elections, confident that French voters would unite to prevent the first far-right government from coming to power in France since the Nazi occupation in World War II.
Macron is up against both Le Pen’s National Rally and the New Popular Front, a coalition of centre-left parties.
“The center has kind of disappeared,” said French economist Nicolas Véron, a senior fellow at the Peterson Institute for International Economics. The National Rally and the New Popular Front “are radical in very different ways, but they’re both very far from the mainstream.”
Political extremists are benefiting from widespread voter discontent about painful price hikes, household budget shortfalls and other hardships. France’s economy is faltering: The International Monetary Fund expects it to achieve a weak 0.7 percent growth this year, down to a dismal 0.9 percent in 2023.
Political promises to put money in voters’ pockets drove economists to the calculators. Their answer: the cost could be very high, at least tens of billions of euros.
News of the National Rally’s political rise pushed France’s CAC 40 stock index to its worst week in more than two years, though markets calmed somewhat last week. Yields on French government bonds also rose on concerns about potential pressure on government finances.
Macron acknowledged the National Rally’s economic pledges “could probably make people happy,” but claimed they would cost 100 billion euros ($107 billion) annually. And he charged that the left’s plans were “four times worse in terms of costs.”
Jordan Bardella, president of the National Rally, which is running to become French prime minister, rejected the figure cited by Macron, saying it was “a figure derived from the government.” But Bardella has not yet said how much his party’s plans would cost or how they would be paid for.
Similarly, the New Popular Front’s 23-page list of campaign pledges details neither their cost nor how they would be financed. But the coalition has vowed to “end the privileges of billionaires”, impose higher taxes on high-income earners, the wealthy and other assets. It has said it does not intend to add to France’s debts.
Far-left leader Jean-Luc Mélenchon, whose France Unbowed party is fielding the most candidates in the coalition, says his platform would require public spending of 200 billion euros ($214 billion) over five years but would generate revenue of 230 billion euros ($246 billion) by stimulating France’s economy.
Bardella also pledged to reduce the sales tax on fuel, electricity and gas from 20 percent to 5.5 percent, “because I think there are millions of French people in our country who cannot afford heating this year or are forced to limit their trips.”
The Paris-based Institut Montaigne think tank estimates that the promise would cost between 9 billion and 13.6 billion euros ($9.6 billion to $14.5 billion) in lost revenue each year. France’s finance ministry estimates the loss to the state treasury would be even worse: 16.8 billion euros ($18 billion) each year.
On the left, the New Popular Front has pledged to keep prices of essential goods, fuel, energy and food stable as part of a package to help France’s poorest.
It is also promising a significant increase in the minimum wage, raising it by 200 euros ($214) to 1,600 euros ($1,711) net monthly. The Institut Montaigne says the two promises could have a hit on public finances of between 12.5 billion euros ($13.4 billion) and 41.5 billion euros ($44.4 billion) annually. It also warns the pay hike could hurt the economy and jobs by making labour more expensive.
Both left-wing and right-wing parties have vowed to roll back pension reforms that Macron pushed through parliament last year despite massive street protests, and raise the retirement age from 62 to 64 to help finance the pension system.
Doing so risks resurfacing the politically divisive question of how France can provide enough money for pensions among its ageing population.
Even before the recent political upheaval, France was under pressure to do something about its unbalanced government budget. EU watchdogs have criticised France for taking on too much debt. France is already dealing with a higher debt load than most European neighbours, with public debt at around 112 per cent of the size of its economy. That compares to just under 90 per cent for the eurozone and just 63 per cent for Germany.
The EU has long insisted that member countries keep their annual deficits below 3 percent of GDP. But these targets have often been ignored, even by the EU’s largest economies, Germany and France.
France’s deficit was 5.5 percent last year. The EU Commission has recommended that France and six other countries begin an “excessive deficit procedure,” the start of a lengthy process that can eventually force a country to take corrective action.
The upcoming election is for the National Assembly, the lower house of France’s parliament. Macron will remain president until 2027 even if his party loses, which could require an awkward “cohabitation” with the far-right National Rally or the left’s New Popular Front.
Macron, who has sought to rein in France’s budget deficit, would have much less influence. economic policyHowever, they will still oversee foreign and defense policy. Whether a left-wing or right-wing government decides on economic policy, the country’s budget problems will likely remain unresolved, leading to higher yields on French bonds.
The nightmare scenario would be a repeat of what happened to the United Kingdom in September 2022, when then-Prime Minister Liz Truss scared financial markets by proposing a wave of tax cuts while offering no spending to offset them. Truss’s plan immediately caused the values of the British pound and UK government bonds to plummet. The Bank of England eventually had to step in to stabilize financial markets, while Truss stepped down after only 45 days in office.
Something similar could happen if a right-wing or left-wing French government ignores EU budget rules and spends recklessly, causing French bonds to fall and interest rates to rise. The European Central Bank might then be forced to buy French bonds to lower yields and calm the markets.
“Unless a future government lays out a credible plan to reduce the deficit, the ECB will remain reluctant to help France,” Andrew Kenningham, chief Europe economist at Capital Economics, wrote on Thursday. “But if yields continue to spiral out of control, it too may be forced to intervene, as the Bank of England did.”
