“This decision was not understood. Many blamed me for it, and many continue to blame me for it. It’s a fact, and it’s my responsibility.” On December 5, the day after the censorship of the Barnier government, Emmanuel Macron outlined the beginnings of a mea culpa regarding the dissolution of the National Assembly decided by surprise, and its actions, six months earlier. Political responsibility, for sure: France revealed itself to be ungovernable at the end of these provoked legislative elections. Economic responsibility, too: since June 9, the country has been paying the high price of this parliamentary fracturing that the head of state, despite being the guarantor of its stability, has failed to correct. Tensions on the financial markets, depression among business leaders, side effects on growth, the burden of debt, public spending… The precipitate of this “unforgivable and destructive act”, in the words of Alain Minc, is not continues to eat away, like acid, at our macroeconomic fundamentals. And its cost continues to rise.
The economy is slowing down
By plunging France into confusion, the announcement of the dissolution brutally blurred the visibility of business leaders. Small and big bosses, French and international, had to review their plans, develop scenarios based on the political color of the National Assembly, then that of the Prime Minister, follow endless parliamentary discussions, punctuated by baroque amendments… Enough to border on a nervous breakdown. All this to return to square one, at the beginning of December, with the ousting of the Barnier government. A lot of time wasted, and a forced wait-and-see attitude which weighs on the entire economy of the country.
The latest INSEE survey in the manufacturing industry, in October, already showed that managers were slowing down in terms of investment. In November, the Bpifrance and Rexecode barometer confirmed this: for 56% of SME and VSE bosses, “the climate of uncertainty in terms of economic policy has a strong negative impact on the company’s activity”. Many of them are postponing or even canceling their investment projects, but also their hiring. So much so that “the unemployment rate, currently 7.4%, should rise to 8% next year, faster than expected,” anticipates Christopher Dembik, economic advisor to the management company Pictet AM. A prospect which could encourage households to be cautious, and therefore to control their spending, while their savings rate is already historically high, at 18%.
The most worrying thing is that the French economy has not finished paying the price of June 9. “The consensus for 2025 growth went from 1.3% in May to 0.9% in November,” notes Fabien Bossy, chief economist for France at Société Générale CIB. Christopher Dembik, for his part, anticipated a meager 0.5% before the censorship of the Barnier team – an estimate which now seems too optimistic to him: “I see no driving force: neither investment nor consumption. As for international trade , we do not expect it to be as dynamic in 2025 as at the beginning of 2024.”
At Allianz Trade, Maxime Darmet ran his forecast models based on the “uncertainty index surrounding economic policies”, an indicator developed by three American academics which is authoritative – the IMF refers to it – and which analyzes, in a multitude of countries, the number of popular newspaper articles containing the occurrences “uncertainty”, “economy” and “politics”. The Allianz Trade expert estimates the negative impact of the post-dissolution context on GDP at 4.4 billion euros in 2024, and nearly 9 billion in 2025. The OFCE, which uses the same index, has revealed its estimate on December 3. The orders of magnitude are converging, with a recessive effect three times greater next year. Published the day before the overthrow of the Barnier government, this note warned: “If an additional step on uncertainty can be taken with censorship and doubts about the final content of the budget, then the impact on 2025 could be more negative.” We are there.
Market pressure is increasing
Emmanuel Macron’s adventurism has not only brought up to date old budgetary concepts like “the special finance law” or “voted services”. He also reintroduced into the public debate an indicator forgotten since the euro zone debt crisis in 2010-2011: the spread France-Germany. The latter reflects the gap between the rates at which the French State borrows, over ten years, and its most virtuous neighbor in terms of public debt. In the event of a crisis in Paris, investors demand higher remuneration when purchasing OATs, equivalent Treasury bonds: the rate therefore increases.
On the eve of the dissolution, the spread was less than 50 basis points. A sign of the ambient excitement, it exceeded 80 points at the end of November. A level not reached for more than ten years. “At 100 basis points, all life insurance companies will receive a phone call from the Treasury to ask them to buy more OATs. At 150 points, there will be panic. This is not the central scenario , but each day that passes makes it less and less improbable”, underlines Olivier de Berranger, general manager of La Financière de l’Echiquier. The cost of the French debt increased in 2024. Worse: France borrows today at rates similar to those of Greece… For public finances, the bill will be even higher – the repayment of the debt is already the second largest expenditure item in the budget, behind Education. The Allianz Trade teams estimate the additional cost linked to interest charges at 0.6 billion euros in 2024. It would rise to 1.7 billion in 2025.
After peaking at 3.3% this summer, the rate on French bonds has however fallen below 3%. Monetary easing by the European Central Bank provides some oxygen. But the February elections across the Rhine risk reshuffling the cards. If the future coalition decides to abandon the dogma of budgetary rigor and the debt brake, Germany will then issue more sovereign bonds – high quality securities. Investors could then turn away from French debt, which would automatically cause a rise in French rates.
The breath of dissolution has not spared the stock markets either. In six months, nearly 200 billion euros of capitalization have gone up in smoke for the CAC 40 alone. “It is not only a question of the ‘political effect,’ explains economist Christian Parisot. This decline is also explained by the poor results of the luxury sector.” Very international, the French champions of this industry are suffering from the slowdown in Chinese demand. However, the five stocks related to luxury – LVMH, Hermès, Kering, L’Oréal and Pernod Ricard – weigh heavily in the flagship Parisian index, around 20%.
To measure the impact of June 9 on French stocks, it is better to look at mid-sized companies, which are more exposed to the domestic economy. The CAC Small, which brings together just over 80 of these companies – Bonduelle, Pierre et Vacances, Fnac Darty, etc. – constitutes a good barometer of market sentiment towards France. Since the dissolution, this index has fallen by… 20%. The great tax and regulatory uncertainty has scalded investors. Especially since, at the same time, Wall Street attracted capital en masse. “Certainly, there is a structural trend of flows towards American assets, to the detriment of Europe. But in recent months we have seen an acceleration which can be attributed to the political context in France. Since the beginning of November, European funds showed an outflow of 14 billion dollars, it’s considerable”, remarks Christopher Dembik. “If Europe underperformed this year, it’s because of France,” agrees Olivier de Berranger.
Election stewardship is expensive
Given the repercussions on growth or interest rates, the following amounts may seem insignificant. Nevertheless: the dissolution also resulted in material expenses, linked to the holding of the legislative elections of June 30 and July 7, then to the resignation of the Attal government on July 16. For the State, which reimburses a good part of the campaign expenses of candidates who obtained more than 5% of the votes, in addition to the printing and delivery of professions of faith, the score rises to nearly 170 million euros, according to budget documents published in recent weeks.
Added to this is an additional grant granted to the National Assembly, which had to dismiss hundreds of collaborators of the 154 deputies who did not find their seats. But also equip newbies with computers and supplies. Or add almost 2 million euros to the differential mutual insurance fund to help MPs return to work (FAMDRE), and unemployment insurance for elected officials. Budgeted by the Assembly office at 28.5 million euros in July, the actual cost of this social plan, recalculated in November, turned out to be less: 19.5 million.
The resigning ministers and their battalion of advisors – 482 as of July 1 – managed current affairs until the appointment, on September 21, of the Barnier team. Two months of slow work, in the sweet euphoria of the Olympics. Except in Bercy, where the acrobatic preparation of the finance bill mobilized the troops. “Our contract ran until the appointment of a new government,” says a former advisor to the Ministry of the Economy. “A fall bonus, which can be activated at the discretion of Matignon, was paid to us at that time : it amounted to 2,000 euros gross.”
In addition to the 190 million euros payable by the State, the municipalities also had to put their hands in their pockets so that last summer’s legislative elections, the organization of which was their responsibility, took place without incident. In a written question asked to Dominique Faure, the delegated minister in charge of local authorities, on July 18, LR senator for Hauts-de-Seine, Christine Lavarde, estimated the cost for the municipalities “between 3,000 and 4,000 euros per office voting”. Knowing that the country has around 70,000 offices, the bill increases by 210 to 280 million euros. The high range is the most likely. “Mobilizing volunteer assessors has become difficult, which leads municipalities to increasingly mobilize agents paid on the basis of increased overtime on Sundays,” recalled Christine Lavarde.
Total: 1 billion euros per minute
By retaining only three criteria – the negative impact on GDP (4 billion), the additional cost linked to debt interest (600 million) and electoral expenditure (470 million) – the five minutes of presidential speech last June have already cost France more than 5 billion euros. The price of democracy or the price of disorder?
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