The recent French elections produced unexpected outcomes, stopping the far-Right’s rise and preventing potential economic instability. Marine Le Pen’s National Rally (NR) fell to third place, indicating a shift back to traditional political dynamics. However, the real surprise was the significant surge of the far-Left, which may pose challenges to eurozone stability.
Could France’s Hard-Left Policies Bring Down the Eurozone?
Unlike recent UK elections, France experienced a dramatic shift. The NR and its allies won only 143 seats, while President Macron’s Ensemble secured 168, and the New Popular Front (NPF) emerged victorious with 182 seats. Although the NR garnered 37% of the votes, the electoral system blocked their path to power. This shift significantly boosted Jean-Luc Mélenchon’s far-Left faction, France Unbowed, within the NPF, known for its radical stance compared to the NR.
The NPF’s agenda includes major initiatives: a €150 billion increase in public spending, a 10% rise in public sector wages, free public transport, and lowering the retirement age to 62. They also aim to enhance education and healthcare staffing and promote green energy investments. These measures are to be funded through higher corporate taxes, a wealth tax, and increased borrowing.
Bloomberg analysis suggests that under the NPF, France’s debt-to-GDP ratio could reach nearly 130% by 2027, compared to 120% under the NR and 110% under Macron’s administration. A far-Left government is expected to challenge bond markets and credit rating agencies, unlike the more fiscally conservative approach observed under the Right.
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Historically, François Mitterrand’s far-Left government in the 1980s implemented strict currency controls and foreign spending limits, policies that could resurface under the NPF, potentially destabilizing finances. Unlike the NR, which might moderate its policies to gain power, the far-Left’s uncompromising stance complicates potential intervention by the European Central Bank during crises.
French voters increasingly favor substantial government spending, with nearly 80% supporting higher deficits. While this approach may yield short-term benefits, it raises sustainability concerns within a unified currency framework. Other eurozone nations have made sacrifices to maintain currency stability, as seen in Greece, whose GDP remains below 2000 levels. France’s reluctance to make similar sacrifices, relying instead on bailouts from neighboring states, risks destabilizing the entire eurozone. Ironically, the newly empowered far-Left is seen as more likely to precipitate such instability compared to the Right.