It will expose the right to all the pressures of the authority. It will divide a combative opposition. And that will give his party a chance to rebuild ahead of the 2027 presidential election. There is no doubt that Macron, France’s famously cunning president, had this in mind when he decided to hold early elections following the disastrous results in European polls.
However, as the dust settles, one point becomes clear. Whatever this plan was, it backfired spectacularly. As yields on France’s massive debt soar and stocks collapse, Macron has sparked a euro zone debt crisis that he will not be able to extinguish.
This was not the result he was looking for. In the European Parliament elections, Macron’s centrist Renaissance party fell to just 14.6 percent of the vote, while Marine Le Pen’s National Rally (RN) received more than 30 percent. Macron has now called for a two-round general election, with the final votes taking place on July 7.
With opinion polls showing the National Rally falling just short of an overall majority, with the united Left in second place and Macron’s centrists falling to third place, he looks certain to lose. Indeed, some polls show Renaissance’s seat count falling to 40 or 50. This would be a humiliation that would allow Macron to limp on for a few miserable years or resign as Charles De Gaulle did in 1969.
True, French politics is often chaotic and parties rise and fall. But this time the most disturbing thing was the reaction of financial markets, which are usually free of political nonsense. French bonds and stocks fell on Monday morning and have continued to fall steadily since then. The spread between French and German 10-year government bonds, a key measure of sovereign risk, saw its biggest weekly rise since 2011, just when the Greek crisis began.
The CAC-40 fell a rapid 6 percent as global stocks hit new highs, and the market fell a further 2.4 percent on Friday.
Shares in banks such as Société Générale fell more than 5 percent on Monday, while the euro fell to a one-month low against the dollar, its lowest level since 2022, even falling against the currency derisively described in Paris as the “Great British Peso.” No one is pushing the panic button yet, but investors are starting to get out.
It’s not hard to understand why.
In reality, France’s debt crisis has been simmering for years. Credit score has been downgraded twice in the last six months. The total debt burden rose to 112 percent of GDP. It now ranks third in the world in terms of total outstanding debt, behind Japan and the United States, both much larger economies that have their own currencies.
It has failed to balance the budget in 50 years and is running a deficit of 5.1 percent of GDP this year, well above forecast levels, even as the eurozone economy recovers from the pandemic.
Meanwhile, its economy stagnated, with growth of just 0.2 percent in the last quarter, less than half that of Britain, which is also one of the world’s weakest economies. Ratings agencies had little confidence that Macron’s finance minister, Bruno Le Maire, could deliver on promised €20 billion (£17 billion) in spending cuts. Whoever replaces him will have even less.
The National Rally, which seems ready to form the next government, can be described as “far-right”, but such claims are incompatible with its economic program.
He promised to lower the retirement age again (significantly below European averages), erected barriers to imports that amounted to taxes on French consumers, and handed out generous subsidies.
In the past, it has flirted with the idea of exiting the euro, a move that could benefit the economy in the long run but could be disastrous for investors. Many analysts and finance ministers are warning of a “Liz Truss moment” in 2022, citing the crisis in bond markets that led to her departure from Downing Street. But the situation could be much worse than that.
With Truss rapidly being replaced, it may not be so easy to dismiss a newly elected RN government. How would they react to an accident? Maybe with capital controls, even if they are banned in the eurozone.
Perhaps with a brutal crackdown on speculators, or with demands that the European Central Bank step into the market with a massive bond-buying program at the risk of creating a new wave of inflation.
But one point is certain. No good results. France has, for a very long time, lived much more wildly than England and many other European countries; it accumulates huge debts to subsidize an economy where the state is too large and welfare too generous.
Now it looks like the breaking point will come very soon. President Macron is fueling a new eurozone debt crisis that will rival, and perhaps surpass, the chaos in Greece in 2011 and 2012.
Prime Minister Sir Keir Starmer and his chancellor Rachel Reeves will have to deal with the effects of the financial crisis across the Channel. Does anyone believe they are up to the task?