by He will reveal the Right to all pressures of office. It will split a fractious opposition. And it will give his party a chance to rebuild before the 2027 presidential election. Undoubtedly, the famous French president Macron reflected on his decision to call an election after disastrous results in the European polls.
But as the dust settles, one point is already clear. Whatever that plan was, it has backfired spectacularly. With the yield on France’s massive debt rising, and equities crashing, Macron has lit the fuse on the eurozone debt crisis – and he won’t be able to put it out.
It was not the result he was looking for. In the European Parliament elections, Macron’s centrist Renaissance party took just 14.6% of the vote, while Marine Le Pen’s National Rally (RN) took more than 30pc. Macron has now called a general election, held over two rounds, with the final votes on July 7.
He is certain to lose, with polls showing the National Rally with only an absolute majority, with the united Left in second place, and the centrist Macron falling to third. In fact, some polls show the Renaissance reduced to 40 or 50 seats. It would be a huge humiliation for Macron, which would lead to him leaving office for a few miserable years, or resigning as Charles De Gaulle did in 1969.
True, French politics is often chaotic, and parties rise and fall. But this time around, it’s the reaction of the financial markets – usually detached from political shenanigans – that worries you the most. French bonds and equities fell on Monday morning, and have continued to fall steadily ever since. The spread between French and German 10-year government bonds, the country’s main measure of risk, was the biggest weekly spike since 2011, right at the start of the Greek crisis.
The CAC-40 quickly fell 6pc, even as global stocks hit fresh highs, and the market was down another 2.4pc on Friday.
Shares in banks such as Société Générale fell more than 5pc on Monday, and the euro fell against the dollar which hit a one-month low, and even against what is sneeringly described in Paris as the “Great British Peso”, fell it until. the lowest since 2022. No one is hitting the panic button yet, but investors are starting to panic.
It’s not hard to understand why.
In reality, France’s debt crisis has been simmering for years. Its credit rating has been downgraded twice in the past six months. The overall debt burden has increased to 112pc of GDP. It now ranks third in the world for total outstanding debt, behind only Japan and the United States, both much larger economies that also have their own currencies.
It has not balanced its budget for 50 years, and even as the eurozone economy recovers from the pandemic, it is still running a deficit of 5.1pc of GDP this year, well ahead of the forecast level.
Meanwhile, its economy has stalled, with growth of just 0.2 in the most recent quarter, less than half the level in Britain, which is of course also one of the world’s weakest economies. The ratings agencies had little confidence in the ability of Macron’s finance minister, Bruno Le Maire, to deliver the promised €20bn (£17bn) of spending cuts. They will have even less in whoever replaces him.
The National Rally that looks set to form the next government could be described as “far right” but those claims do not match its economic programme.
He has promised to lower the retirement age again (well below the European average), to erect import barriers that are equivalent to a tax on French consumers, and to subsidize massive desertions.
In the past, he has flirted with leaving the euro, a move that could benefit the economy in the long term, but would be disastrous for investors. Many analysts, as well as the finance minister, are warning of a “Liz Truss moment”, referring to the crisis in the bond markets which has seen her finally leave Downing Street in 2022. But it could be much worse than that.
Although Truss was quickly replaced, a newly elected RN government may not be so easy to remove. How would they respond to an accident? Perhaps with capital controls, even if they are banned within the eurozone.
Perhaps with inflated pressure on speculators, or with demands that the European Central Bank will enter the market with a massive bond buying program – even at the risk of triggering a new round of inflation.
One point is certain, however. There are no good results. For a long time, France has been living more wildly than Britain and many other European countries, taking on huge debts to subsidize an economy where the state is too big, and welfare too generous.
The crunch point now looks like it will come very soon. President Macron is igniting a new debt crisis in the eurozone, a crisis that will rival – perhaps even surpass – the Greek chaos of 2011 and 2012.
As PM Sir Keir Starmer and his Chancellor Rachel Reeves will have to deal with the fallout from a financial crisis on the other side of the Channel. Does anyone believe they are up to the job?
