President Emmanuel Macron troubles deepened with pivotal legislative elections weeks away as the EU threatened financial sanctions against France for failing to rein in its rising deficit and debt. The warning from Brussels on Wednesday has thrown a stark spotlight on the precarious state of France’s public finances at one of the most uncertain moments in modern French politics.
The EU’s fiscal alert follows on the heels of a national debt amounting to roughly 3 trillion euros and a deficit of about 154 bn. euros, representing 5.5% of economic output. This stress on finance comes after immense government spending while trying to stave off COVID-19 effects to support workers and businesses, and subsidies also aimed at cushioning blows of inflation driven by the invasion of Ukraine by Russia.
Macron Fiscal Policy Under Fire
The EU’s criticism sets the stage for a bitter battle between Brussels and Paris. The National Rally party, fronted by Marine Le Pen, is surging in the polls, as is the New Popular Front splinter group on the left, and both could take the fight to Macron’s centrist party. The opposition groups have all threatened more significant spending on public services—anathema to Macron’s central message, which champions the need for severe budget cuts of up to 25 billion euros this year to restore stability in France’s finances. The opposing views also lambaste the EU institutions and demand that fiscal policies become looser rather than more strict.
EU rules require budgetary discipline for countries in the bloc, usually respecting debt levels of below 60% of GDP and budget deficits of below 3% of GDP. During the pandemic, the rules were temporarily suspended by Brussels, but high spenders were warned they had to reduce their deficits quickly or face an “excessive deficit procedure.” ” This process involves negotiations and can result in fines. France and other countries, including Italy, Belgium, and Poland, broke the fiscal rules.
Macron Snap Elections Gamble
Added fiscal scrutiny further intensifies the stakes for France’s upcoming parliamentary elections, concluding the second round of voting on July 7. Should controversial parties like the National Rally, or even the New Popular Front, gain some significant power, then gridlock could ensue with a severe impact on aspects of fiscal policy. Mujtaba Rahman, the European managing director of the Eurasia Group think tank, said a far-right or united left government could make France’s fiscal deficit even worse, thereby making it harder to adhere to EU financial rules.
Macron had called for snap parliamentary elections early this month after his party suffered a catastrophic defeat in the hands of the far-right during European Parliament elections. That further unsettled an already overrun political landscape and spooked investors who had since not thought twice about France being a stable place to make an investment. The political uncertainty is causing choppiness in French stock markets and driving up the risk premium on French government bonds.
It was left to Jordan Bardella, the National Rally’s chief strategist and a close ally of Marine Le Pen, to make bold promises to quash the cost-of-living crisis by slashing taxes on energy and electricity, lowering income taxes for younger people, and encouraging pay increases that do not incur extra social security charges. He did, at any rate, have to retreat on some of his more spending-heavy ideas, such as lowering the legal retirement age to 60, after independent economists totted up that his programme would cost around 100 billion euros. A partial rebound slightly offset the big selloff that caused shares in France to fall by more than 6 percent.
Upcoming Elections to Define France’s Fiscal Future
The New Popular Front coalition, led by the leftists, has also pledged major economic changes in the country: an increase in the minimum wage, decrease in the retirement age, and freezing of prices for basic goods. All these seen as helping to ease economic pressures placed on French households but seriously raise concerns among investors for fiscal prudence.
The opposition’s fiscal policies, proposed by Finance Minister Bruno Le Maire, could lead to a dramatic surge in public spending, potentially counteracting efforts to restore financial stability. France prioritizes and implements fiscal discipline, considering financially unscrupulous opposition as such.
As France goes through a very turbulent time, both politically and financially, the upcoming parliamentary elections will play a defining role in regard to the future of the fiscal policy of the country and to what extent the same be held in accordance with the financial laws of the European Union. These decisions will not be merely a reflection of the home-based policies of France; it will also affect the overall stand of this country in the bigger picture of the European economy.
