Why France’s far right is spooking markets

7 min read

Marine Le Pen’s big-spending, populist plans to help poorer and working class voters with tax cuts and promises to lower the retirement age may have been easy to tout when her French far-right party was in opposition.

Now the Rassemblement National is waking up to the reality that those economic pledges may be difficult to enact if it takes power following snap elections — and could turn into a “Liz Truss-style” liability on the campaign trail.

Rivals from president Emmanuel Macron’s centrist party have already pounced, warning that a debt crisis like the UK gilt market turmoil in 2022 could ensue if they end up in a power-sharing situation with the RN, similar to the fallout from the former British leader’s plans for billions of unfunded tax cuts.

Analysts have even said it could be worse: the impact from the RN’s spending would be twice as painful as what might have happened under Truss, blowing out France’s deficit to economic output ratio by an extra 3.9 percentage points a year, according to consultancy Asterès.

Bar chart of Peak annual public deficit resulting from measures (% of each country's GDP in 2022)  showing RN's programme would have double the impact on the public finances that Liz Truss had in the UK

Markets are already rattled by the idea of a far-right government running the Eurozone’s second-largest economy with a protectionist and costly programme, at a time when public finances are already under strain.

Since Macron dissolved parliament on Sunday and called the snap two-round ballot on June 30 and July 7 — a shock response to his party’s drubbing by the RN in European elections — the gap between French and German government borrowing costs has widened to its furthest level since October.

The RN seems to have taken note. After railing against Macron’s unpopular move to raise the retirement age to 64 last year, the RN’s rising star Jordan Bardella appeared to backtrack on the party’s oft-repeated promise to reverse the reform, which could add tens of billions in annual spending.

“We’ll see,” Bardella slipped to RTL radio this week, when asked if such a plan still stood, adding that Macron had saddled France with “pulverising” deficits.

Marine Le Pen and RN’s rising star Jordan Bardella
Marine Le Pen and RN’s rising star Jordan Bardella, who this week seemed to backtrack on the party’s promise to reverse unpopular pension reforms © Stephane De Sakutin/AFP/Getty Images

Le Pen has a host of other economic priorities aimed at relieving pressure on lower and middle class voters like cutting taxes on electricity and fuel bills and reducing VAT on a basket of essential food and household products.

Economists have decried many of these as unfunded, incoherent and set to add to an already ballooning deficit. An Institut Montaigne study put a price tag of over €101bn in extra spending a year to their programme in the run-up to the 2022 presidential election. The RN disputes that figure by saying the policies have evolved since then.

If it repeats the feat of racking up an unprecedented number of votes, the RN could end up in a strong enough position for 28-year-old Bardella to be named prime minister, forcing the business-friendly Macron into an uncomfortable power-sharing agreement.

Even after ditching ideas that had spooked markets a decade ago when Le Pen ran for president, such as leaving the Eurozone or even the EU, RN leaders have struggled to put forward a convincing economic programme.

In the 2022 presidential campaign they promised to exempt workers under 30 from income tax to fight a brain drain, and nationalise French motorways to cut unpopular high road tolls.

They also want to establish a “national preference” for public procurement, which would go against EU single market rules.

On pensions, the RN once pushed for a retirement age of 60, but later suggested 62 for those who start work at a young age. Last year Macron raised it to 64, prompting months-long street protests.

Funding these policies would come, the RN has argued, from plans to curb immigration and benefits that migrants receive in France, including financial support when they are out of work or family aid to households without at least one French parent. The many-layered levels of national to local government would also be slashed.

“The ‘programme’ of the RN is a pure opposition platform, an aggregation of gifts to those with legitimate or illegitimate complaints. It is not a programme,” said Olivier Blanchard, the former chief economist at the IMF.

“Gifts cost money. The money is not there . . . In any programme, saying that financing will come largely from the elimination of fraud is a giveaway. So is the notion that anti-immigrant measures will yield considerable revenues.”

One foreign investor in France said a big concern for many was if an RN government reversed Macron’s tax cuts and reverted to a form of wealth tax he abolished.

Market jitters wiped some €10bn off the collective values of French banks BNP Paribas, Société Générale and Crédit Agricole, seen as proxies for the economy, in the two days after Macron called the vote. Highway concession holders took a hit, as did energy companies like Engie, big on the wind farms that the RN wants to dismantle. 

One senior official in Macron’s government said the strategy against RN was clear: “scare people” on the economy. 

“What would happen to your pensions? They would no longer be able to pay them. What would happen to your mortgages?” Macron told a news conference on Wednesday.

But the far-right party has so far shrugged off the backlash. “We don’t need the approval of people who are inept themselves! They have racked up colossal debt,” the RN’s secretary-general Renaud Labaye told the Financial Times last month.

Le Pen has sought to turn the tables on Macron for his poor management of public finances, including in a column in the business daily Les Echos earlier this year in which she called France’s surging government debt situation a national emergency.

Under Macron, the deficit blew past its target to hit 5.5 per cent as a share of economic output last year, beyond the expected 4.9 per cent as tax revenues fell short of government expectations. 

After big spending programmes to shield the economy from the Covid-19 pandemic and a European energy crisis, ministers have pledged cuts to try and get France on track for an EU target of 3 per cent by 2027, although analysts and credit rating agencies like S&P Global are still cautious

Line chart of General government net debt as a % of GDP  showing French public debt has been on a rising trend since the financial crisis

From the business elite in Paris to smaller companies, worries about the RN’s plans are widespread, even among some who argue the party is sometimes treated unfairly. 

“Their economic policy is dramatically bad. Advocating economic nationalism is not extremist, it’s not dangerous, it’s not particularly racist, it’s just economically a bad idea,” said Sophie de Menthon, the head of Ethic, a French small business lobby group.

Not all analysts are convinced that hammering the RN’s shortcomings on the economy will resonate, given how appealing the far-right’s core message is: helping strained household budgets.

Driving a car and heating a home were becoming “luxury products”, Bardella said this week, highlighting a flagship promise to cut value added tax on fuel, electricity and gas from 20 to 5.5 per cent.

“They’re surfing on something a lot of people do not seem to understand, that there is something irrational in the vote for the RN,” said Jean-Yves Camus, a political scientist with the Fondation Jean Jaurès.

“The question is not so much about which is the most competent (party) . . . people want to be able to dream a little, to be told things can change.”

Additional reporting by Ben Hall in London

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