Fear of Le Pen’s economic proposals shakes markets

The call for early legislative elections in France and the possibility of the extreme right coming to power causes nervousness in the markets. Although the economic program of National Regrouping (RN) is yet to be defined, its leaders have already mentioned that some measures will be similar to those proposed for the 2022 presidential elections. Marine Le Pen’s party broadly defends tax reductions and increases in expenses in certain sectors. These are expensive proposals that, without credible income, run the risk of running into an already fragile budget situation, some economists warn. Shortly after the election was called, the cost of French debt rose and risk assessment agencies showed signs of concern.

“I believe that the economy goes through some convictions, simplification, the need for economic patriotism, the reduction of taxation on companies, the working and middle classes, and the departure from European rules on electricity prices. My priority will be to lower electricity prices,” RN president Jordan Bardella said on Tuesday, two days after sweeping the European elections with 31.5% of the votes.

President Emmanuel Macron, after suffering the worst defeat of his career, announced on Sunday the dissolution of the National Assembly and called legislative elections for June 30 and July 7. The first polls, which should be taken with a grain of salt, suggest that RN could become the first party in the chamber, although without an absolute majority. The far-right party currently has 88 deputies and to reach this majority would need another 201.

The prospect of the far-right coming to power in the eurozone’s second largest economy has shaken the economic and financial sectors. “Since an RN victory is a possibility, the cost of French debt has skyrocketed,” Bruno Le Maire, Minister of the Economy, warned on Tuesday. He also warned of a possible debt crisis and recalled the situation experienced in the United Kingdom in 2022, following the announcement of former Prime Minister Liz Truss’ historic tax cut. After the call for early elections, the risk premium skyrocketed and led the 10-year French bond to touch 3.32% on Tuesday, the highest level since mid-November.

The nervousness is palpable. The rating agency Moody’s warned on Monday that the dissolution of the Lower House “increases the risks” that weigh on the country’s budgetary control and, therefore, on its rating. The Fitch agency, in turn, warned on Tuesday of the climate of “uncertainty.” Public debt in France stands at 110.6% of GDP and the deficit reached 5.5% of GDP last year. At the beginning of June, the rating agency Standard & Poor’s It lowered its sovereign debt rating for the first time since 2013.

The main economic lines of RN remain confusing and could undergo modifications to attract more allies. Bardella himself seems to have taken note of the atmosphere. In an interview with RTL, the aspiring prime minister insisted: “Economically, I am reasonable.” And he continued: “I have the lucidity and honesty to tell the French that the economic situation that we are going to inherit […] It will be complicated. Consequently, and within the framework of cohabitation, we will have to make decisions.” Asked if he would repeal Macron’s unpopular pension reform, he responded with “we’ll see.” On Thursday, however, he committed to implementing “a fairer retirement system” and recalled that it was one of the RN’s commitments.

An “economically xenophobic” program

When analyzing Le Pen’s economic program, which until a few years ago advocated leaving the European Union, we must refer to the 2022 proposals and the latest statements by far-right leaders. Among the measures are reducing VAT on energy products (fuel, gas, electricity) from 20% to 5.5%, exempting workers under 30 years of age from personal income tax, establishing a national preference for public procurement or implementing an exemption of contributions for salary increases of 10%.

In addition to the fact that some points may raise questions of legality, former head of the International Monetary Fund, Olivier Blanchard, describes a program that is “fiscally irresponsible.” “Like any list of popular promises, there is nothing resembling a growth strategy, nothing about how to reduce unemployment, how to help France remain competitive in the sectors that will sustain growth and allow redistribution,” he criticized in x.

Christophe Boucher, professor of Economics at the University of Paris Nanterre, tells this newspaper that “it is a program that is not complete, that is not funded. That is, there is a very large imbalance between expenses and income.” The Montaigne Institute, a liberal ideas laboratory, estimated that they would involve an extra expenditure of 101 billion euros per year. A figure that Macron has repeated and that Le Pen’s party rejects.

Clément Carbonnier, professor of economics at the University of Paris 8, insists that the program is “xenophobic, even economically.” And he elaborates: “It is expected that their main source of income will come from hypothetical benefits or savings that would be obtained with xenophobic policies.” The party defends that the income would come from its anti-immigration measures, such as stopping the arrival of immigrants or reducing the aid they can receive. They also cite the fight against fraud (fiscal, social).

Le Maire, the Minister of Economy, urged the “economic world” to “get wet” and “say clearly what you think about each other’s programs,” also referring to the left’s pact. MEDEF, the main French employers’ association, warned about the proposals of “some” without directly citing Le Pen’s party, but referring to points from it.

It remains to be seen which ones will be presented and in what way. Boucher believes that if one day they have to present a government program, it will be an “extremely delicate exercise for them.” “Either they present something reasonable and in the end it will be said that when they came to power they were cowed, or they present something in line with what they announced, but they provoke a crisis,” he maintains.

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