The executive is in the campaign, including, and above all, Emmanuel Macron. Since his announcement of the dissolution of the National Assembly on Sunday evening, the President of the Republic has increased his attacks against his political adversaries, from the National Rally (RN) to the Union of the Left, grouped under the banner of the New Popular Front.
If the RN comes to power, “credit will cost more”, affirmed Emmanuel Macron during his press conference on Wednesday June 12. Explaining that real estate loans will soar because rates will soar. And his Minister of the Economy, Bruno Le Maire, adds: “if the RN applies its program, a debt crisis is possible in France.” Projections fictitious or real? For L’Express, Anthony Morlet-Lavidalie, economist at Rexecode, deciphers the challenges of Jordan Bardella and Marine Le Pen taking charge of the National Rally on July 7.
L’Express: Is the scenario mentioned by Emmanuel Macron possible, or even probable?
Anthony Morlet-Lavidalie: At this stage, caution remains in order. This involves analyzing the first signals. It is important to mention that French 10-year rates, that is to say the cost at which France borrows at ten years, have tightened since Sunday. We note in particular that the rate gap between the 10-year French debt and its German equivalent has widened significantly. This means that investors demand a higher risk premium to agree to hold French debt. Worse, there has even been a change in hierarchy in recent days in the ranking of European countries: Portugal and Belgium now have market rates lower than that of France. The traditional hierarchy has been reversed.
More precisely, with regard to the question of real estate loans, if long rates (at 10 years) increase, this will indeed have repercussions on bank credit and all credits distributed to households and businesses, in particular on loans real estate. Generally speaking, there is a transmission of sovereign rates, those to which the French State borrows, which could have repercussions on other agents (households, businesses). If French 10-year sovereign rates were to be discriminated against because of the results of the election, in the end it would be both the State and households and businesses who would pay more for their loans…
However, the European Central Bank (ECB) decided to lower its key rates on June 6. If the RN wins, would this not be felt on the French market?
Overall, the movement initiated by the European Central Bank should not be called into question. The ECB is independent and it adjusts rates according to its mandate which is to stabilize inflation at a level close to but below 2%. If the euro zone countries should benefit from the easing of monetary policy, France could benefit less from this movement in the event of a victory for a populist party due to the risk premium which would result from investor distrust.
What exactly is worrying economic circles?
What scares the markets is the risk that a party located at the ends of the political spectrum wins and pursues an unsustainable economic policy. On one side or the other, the economic programs are not very credible, and risk generating a lot of additional public spending when we are already at a very high level which shows clear signals of inefficiency.
Furthermore, we are starting from a situation where our public finances are very degraded. Between 2022 and 2023, France is one of the only EU countries to have recorded a deterioration in its primary public balance (that is to say excluding interest charges on the debt). However, both political parties propose to go even further in public spending. In addition, the questioning of pension reform is worrying.
More generally, is a debt crisis to be feared in the event of a victory for the RN on July 7, as Bruno Le Maire asserts?
Is the probability high, no. This is not the central scenario, on the other hand, the probability of occurrence of this extreme risk, which would have devastating consequences, has increased in the specter of the coming to power of a populist party. It’s undeniable.
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