“Political instability and the prospect of the RN coming to power throw markets and the economic world into chaos”

EWhen Emmanuel Macron overturned the table, he wasn’t content to distract himself “puzzle style” cards of French political life, threw the markets and the economic world into chaos. Less than two weeks after S&P Global Ratings downgraded French debt, it brought the issue back to the fore on May 31.

This is evidenced by the widening of the difference between the ten-year interest rate on French debt and its German neighbor, which is considered the safest, and exceeded 60 basis points (0.6 percentage point) on Tuesday, June 11. It’s been four years since the gap was this big.

The cause is, of course, political instability, but also the prospect of the National Assembly (RN) coming to power with its extreme budget extravagance. In a note on Tuesday, economist Sylvain Bersinger estimated — based on Marine Le Pen’s 2022 presidential program and its costs, calculated by the Montaigne Institute — that the RN program would increase the public deficit by 3.9% of gross domestic product annually. . Twice as much as proposed by former British Prime Minister Liz Truss in October 2022, which caused the pound sterling to collapse and blew up her government.

The euro does not completely immunize

At least France, if it risks a real debt crisis, is protected from currency disaster. And he owes it to the euro, which the French extreme right mocks so much. If the euro prohibits France from devaluing its currency, it will prevent it from becoming poorer by raising import prices and penalizing savers.

According to a Banque de France study published in 2019, over twenty years, the volatility of the currency in the case of France was divided by 2.7. In addition, the foreign exchange risk for intra-European trade, i.e. 50% of French trade, was eliminated. Finally, the euro has become the world’s second reserve currency after the dollar, stabilizing its fluctuation relative to its peers.

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However, the euro does not completely immunize against spiraling debt. Although the single currency has significantly reduced the exchange rate difference with Germany. Between 1986 and 1992, it was 1.9 percentage points (190 basis points), three times more than today. If nothing is done, the debt burden, which is already almost 50 billion euros, more than the 2023 defense budget, would reach 80 billion in 2027, the same as the national education system. The moment of reckoning is coming and no political party will be able to ignore it.

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