The promises are appealing -– and expensive.
Vying to oust the centrist government of President Emmanuel Macron in an upcoming two-round parliamentary election June 30 and July 7, French political parties of both the far right and far left are vowing to cut gasoline taxes, let workers retire earlier and raise wages.
Their campaign pledges threaten to bust an already-swollen government budget, push up French interest rates and strain France’s relations with the European Union.
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“The snap election could well replace Macron’s limping centrist government with one led by parties whose campaigns have abandoned any pretense of fiscal discipline,’’ economist Brigitte Granville of Queen Mary University of London wrote Thursday on the Project Syndicate website.
The turbulence began June 9 when voters handed Macron a defeat at the hands of Marine Le Pen’s hard right National Rally party in EU parliamentary elections. Macron promptly and surprisingly called a snap parliamentary election, convinced that French voters would rally to prevent the first far-right government from taking power in France since the Nazi occupation in World War II.
Macron is aligned against both Le Pen’s National Rally and the New Popular Front, a coalition of far- to center-left parties.
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“The center has kind of evaporated,’’ said French economist Nicolas Veron, 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.’’
The political extremes are benefiting from widespread voter discontent about painful price rises, squeezed household budgets and other hardships. The French economy is sputtering: The International Monetary Fund expects it to eke out weak growth of 0.7% this year, down from an unimpressive 0.9% in 2023.
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The political pledges to put money in voters’ pockets sent economists reaching for calculators. Their answer: The costs could be considerable, at least tens of billions of euros.
News of National Rally’s political ascendance sent France’s CAC 40 stock index tumbling to its worst week in more than two years, although the market calmed somewhat last week. Yields on French government bonds also rose on worries about the potential strain on government finances.
Macron acknowledged that National Rally’s economic pledges “perhaps make people happy,” but claimed they would cost 100 billion euros ($107 billion) annually. And the left’s plans, he charged, are “four times worse in terms of cost.’’
Jordan Bardella, the National Rally president gunning to become France’s prime minister in the election, poo-poos the figure cited by Macron, saying it was “pulled out of the government’s hat.” But Bardella has yet to detail how much his party’s plans would cost or to say how they’d be paid for.
Likewise, the New Popular Front’s 23-page list of campaign pledges doesn’t cost them out or detail how they’d be financed. But the coalition vows to “abolish the privileges of billionaires,” taxing high earners, fortunes and other wealth more heavily. It says it doesn’t intend to add to France’s debts.
Far-left leader Jean-Luc Mélenchon, whose France Unbowed party is fielding the largest number of candidates in the coalition, says its 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 France’s economy.
Bardella vows to slash sales taxes — from 20% to 5.5% — on fuel, electricity and gas, “because I think there are millions of French people in our country who this year can no longer afford to heat themselves or are forced to limit their trips.” The Paris-based Institut Montaigne think tank estimates the cost of that pledge at between 9 billion and 13.6 billion euros ($9.6 billion to $14.5 billion) annually in lost revenue. France’s Finance Ministry estimates an even bigger dent in public coffers: 16.8 billion euros ($18 billion) per year.
On the left, the New Popular Front pledges to freeze prices for essentials — fuel, energy and foodstuffs — as part of a package to help some of France’s poorest. It’s also promising a considerable bump in the minimum wage, raising it by 200 euros ($214) to 1,600 euros ($1,711) net per month. The Institut Montaigne says that those two pledges together could amount to an annual hit of between 12.5 billion euros ($13.4 billion) and 41.5 billion euros ($44.4 billion) for public finances. It also warns that the wage bump could hurt the economy and jobs by making labor costlier.
Both the left and the right pledge to roll back pension reforms that Macron railroaded through parliament last year in the face of massive street protests, raising the retirement age from 62 to 64 to help finance the pension system. Doing so risks reopening the politically divisive question of how France can continue to adequately fund pensions as its population ages.
Even before the latest political turbulence, France was already under pressure to do something about its unbalanced government budget. The EU watchdogs have criticized France for running up excessive debts. France already is operating with a higher debt load than European neighbors, with its public debt at an estimated 112% of the size of its economy. That compares with less than 90% for the eurozone overall and just 63% for Germany.
The EU has long insisted that member states keep their annual deficits below 3% of gross domestic product. But those targets have often been ignored, even by Germany and France, the EU’s biggest economies.
France’s deficit last year stood at 5.5%. The EU’s Commission recommended that France and six other countries start an “excessive deficit procedure,’’ beginning a long process that can ultimately force a country to take corrective action.
The upcoming election is for the lower house of France’s parliament, the National Assembly. Macron would remain president until 2027 even if his party loses, which might require an awkward “cohabitation’’ with the National Rally on the far right or New Popular Front on the left.
Macron, who had sought to rein in France’s budget deficits, would have a greatly reduced say over economic policy, though he would still oversee foreign and defense policy. With a leftist or rightwing government calling the shots on economic policy, the country’s budget problems would likely go unresolved, leading to higher yields on French bonds.
The nightmare scenario would be a replay of what happened to the United Kingdom in September 2022 when then-Prime Minister Liz Truss spooked financial markets after proposing a wave of tax cuts without cutting any spending to offset them. Truss’ plan immediately sent the values of the British pound and U.K. government bonds tumbling. The Bank of England ultimately had to step in to stabilize financial markets, while Truss quit after just 45 days in office.
Something similar might happen if a right- or left-wing French government chose to ignore the EU’s budget rules and went on a spending spree that sent French bonds tumbling and interest rates higher. The European Central Bank might then be forced to buy French bonds to drive yields lower and calm markets.
“The ECB would be reluctant to come to the rescue of France itself unless and until any future government put in place a credible plan to bring the deficit down,’’ Andrew Kenningham, chief Europe economist for Capital Economics, wrote Thursday. “But if yields were spiraling out of control, it could also be forced to step in, just as the Bank of England did.’’