It is attributed to De Gaulle that of “Either me or chaos”, a phrase that ─as often happens with so many others attributed to famous people─ apparently he never uttered. In August 1975, shortly before Franco’s death, the cartoonist Ramon published a cartoon on the cover of the magazine Hermano Lobo in which a politician addressed the crowd saying “Either us or chaos”, to which she responded angrily: “Chaos, chaos!” And the politician replied: “It’s the same, it’s us too”.
This scene perfectly reflects the situation in France: a real political chaos amidst strong economic uncertainty. With a public debt of 110.6% of GDP, a deficit forecast for 2024 of 5.1% – which has led to the Commission’s initial proposal to open an excessive deficit procedure -, Growth forecasts of just 0.7% in 2024 and 1.4% in 2025France is not in the mood for many jokes. Its public finances were already in a rather delicate state before Macron called early elections, and the uncertainty generated by them does not help to reassure the markets.
On the economic front, RN has proposed indexing pensions to inflation, repealing Macron’s retirement reform and lowering VAT on energy from 20% to 5.5%.
The most likely scenario is the victory of the National Grouping (RN) of Marine Le Penan extremely worrying result for a Europe that does not need another internal enemy. It is worth remembering that, until relatively recently, Le Pen was a staunch advocate of France’s exit from the European Union: in January 2014 she went so far as to ask the then president François Hollande to organise “a referendum on France’s exit from the EU”. Months later, the then-named National Front would win for the first time in the European elections with 25% of the votes. However, three years later, in May 2017, Le Pen faced Macron for the second round of the presidential elections after a rather surreal televised debate (their “Look, they are therethey are in the countryside, in the villages, on social networks” became a meme) and lost. Since then, and taught by the experience of the United Kingdom, abandoned the idea of Frexitbut not its rejection of Europe, which is still very much present. On economic matters, RN has proposed indexing pensions to inflation, repealing Macron’s pension reform and lowering VAT on energy from 20% to 5.5%, as well as cutting the EU budget (of course, minimizing aid to Ukraine, as a good old admirer of Putin).
On the other side, the New Popular Front (NFP)a left-wing alliance that includes France Insoumise (FI) of Mélenchonthe Socialist Party of the former socialist president François Hollandethe Greens, the French Communist Party and others, also arouses suspicion in the markets for a programme that includes an immediate increase in the after-tax minimum wage to 1,600 euros, a price freeze on basic necessities (such as energy bills), the rejection of European tax rules and the repeal of the pension reform.
The NFP, which is staunchly supportive of Ukraine, has just announced that it will join forces with Macron’s party: 131 NFP candidates have withdrawn to concentrate their vote on other centrists or moderate right-wingers, and 82 from the president’s party Macron have done the same, reducing Le Pen’s chances of an absolute majority.
From the point of view of the future of Europe, a victory for the NFP-Macron alliance would be the most reassuring. From the point of view of fiscal sustainability, however, no result ensures calm for the markets, since both advocate a strong increase in spending and reject any European fiscal restraint. A blocked parliament would also be bad news, since France needs a solid government to clean up its finances as soon as possible. Let us remember that the definitive inclusion of France in the Excessive Deficit Procedure would make the European Central Bank could not use his Instrument of Transmission Protection (TPI) to soften the country’s risk premium, which is why an alternative emergency programme would have to be launched. The markets are frightened and the French 10-year bond is already at 3.3, almost 70 basis points above the German one (more than Portugal and Belgium).
If Le Pen comes to power, she will probably disguise herself as a moderate for a while while she waits for the opportunity to achieve the real power that comes with the presidency of the Republic.
Once again, the economic risks this year come from the political side. The last thing the European Union needs now is tension in the debt markets. Let us remember that Liz Truss’s mini-budget gave rise to a British debt crisis that forced the Bank of England to use all its artillery.
It is difficult to know what Macron was thinking when he called for early elections. Perhaps, in the worst case, a National Rally faced with the wear and tear of governing over the next few years – moving from muses to theatre – would be less likely to elevate Marine Le Pen to the presidency in 2027. It is therefore likely that Le Pen, if she comes to power, will disguise herself as a moderate for a while while she awaits the opportunity to achieve the real power that comes with the presidency of the Republic.
Ten years ago, when asked Jean-Claude Juncker on television why he had turned a blind eye to the countless French tax breaches, he replied: “Because it’s France”. Well, that phrase can become a curse: precisely because France is France, Europe cannot afford to let French debt and irresponsible fiscal policy drag the rest of the EU into a new financial crisisMacron has played a game of “me or chaos” and, whatever the outcome, financial chaos may come to us either way.
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