When a British conservative newspaper worries about a possible arrival of the National Rally in Matignon, we listen… In an article published by the magazine The Spectator, Matthew Lynn, financial columnist and author of Bust: Greece, The Euro and The Sovereign Debt Crisis And The Long Depression: The Slump of 2008 to 2031draws up a damning observation: “France cannot afford a Le Pen government.”
Speaking to L’Express, Matthew Lynn details his reasons for concern, and explains why the hypothesis of an RN government would be “undoubtedly the last thing likely to reassure investors”, while our country already finds itself in difficulty on the public debt plan. For him, “Emmanuel Macron was very, very reckless, because in doing so, he was playing with the French economy.” Interview.
L’Express: In an article published in the conservative newspaper The Spectator, you explained that France cannot “afford a Le Pen government”. Why that ?
Matthew Lynn : Among all the major G7 economies, France was already in great financial difficulty even before Emmanuel Macron’s decision to dissolve the National Assembly. At the beginning of June, the American rating agency Standard & Poor’s reduced France’s credit rating (i.e. the rating which assesses the quality of its debt) from “AA” to “AA –”. A first since 2013… Not to mention that your country still has a deficit of 5.1% of GDP, even though its growth was almost zero (0.2%) during the last quarter. That is less than half of that of the United Kingdom, yet one of the lowest in the world. There was therefore already enough to cool the markets.
Add to this the arrival of Marine Le Pen’s party in Matignon, whose economic program is extremely nationalist and protectionist, and which has marked its distrust of almost all measures or reforms likely to contribute to the reduction debt (reduction in social spending, pension reform, unemployment insurance reform)… This is undoubtedly the last thing likely to reassure investors. It took barely twelve hours for the first effects to be felt. As of Monday morning, the French CAC 40 stock index fell by almost 2% and French government bonds exploded. And among the players holding a lot of French debt, there are the banks… Unsurprisingly, they have also been hit hard. BNP Paribas, for example, plunged 5% on the Paris Stock Exchange. Clearly, a far-right majority in Parliament and even a far-right Prime Minister could well trigger a crisis on the French debt markets.
In February, Marine Le Pen took up the subject of debt by publishing an article in The echoes entitled “Public finances: faced with the wall of debt, the urgency of a national strategy”. Among the potential areas for reducing spending was the fight against immigration…
The argument for reducing spending on immigration is also a chestnut among some Conservatives in the United Kingdom. It seems obvious that Marine Le Pen wanted to address the issue of debt to show that her party was “presidential”, while keeping the theme of immigration at the heart of her program. But in reality, immigration does not cost the state money, with the exception of a small number of asylum seekers who represent only a small percentage of the economy. The question of immigration can of course be debated. For example, we can question its societal implications in our respective countries, or even the long-term economic impact of welcoming migrants, but making it a debt reduction item seems to me to be totally irrelevant. In reality, in the short term, immigration tends to help public finances, because immigrants take up many jobs and generate additional taxes and tax revenue. Investors know this. This is one of the reasons why British governments have allowed the number of migrants to increase in the United Kingdom. Net migration reached a historic level in 2022, 606,000, compared to 335,000 in 2016.
How can we be sure that the Paris Stock Exchange fell because of the announcement of the dissolution of Parliament, and not because of the results of the far right in the European elections, or even simply because investors no longer believed in Bruno’s wish? The Mayor to make 20 billion euros in savings in 2025?
Of course, the stock market is always influenced by multiple factors. But usually, markets are rarely influenced by European elections. In fact, it is enough to compare the decline experienced by the Paris Stock Exchange with that of other major stock exchanges to see that the change in France occurred suddenly after the announcement of the dissolution of Emmanuel Macron. For example, Germany fell by 0.34% on the day, and Italy by 0.3%, while the Paris Stock Exchange fell by 1.35%. Furthermore, for many, Marine Le Pen’s party is also associated with her procrastination on the hypothesis of leaving the euro zone. Even though she has come back to it, there is always the fear that the idea will cross her mind again in the future…
Do you really think this is plausible?
No, I think it’s unlikely. The RN is very attentive to the signals sent by the French. Pro-Frexit or pro-Euro exit proposals generally garner little support among voters. Additionally, France’s debt level would make this idea particularly difficult to implement, as the debt held by the entire world is denominated in euros. Exchange rate fluctuations often have negative effects that are difficult to control. If the debt were suddenly no longer denominated in euros, investors would sell it very quickly to avoid big losses.
What consequences could the arrival of the RN in Matignon have on a European scale?
The consequences could be very severe, even if France remains in the euro zone. Look at the Greek crisis thirteen years ago. At the time, the crisis had somehow spread to Spain, then to Italy… And the European Central Bank (ECB) had obviously rescued the Greeks. Now imagine a situation where France, whose economy is larger than that of Greece, would enter a new crisis under the pressure of an economic policy tailored by the RN. The ECB would undoubtedly intervene because France is simply too big to fail. But this would only create new problems, because it is not supposed to bail out member states, and it would cost all the other countries in the eurozone a lot of money.
Don’t you think it is possible that the scenario of a “Le Pen government” fails, precisely because of the pressure exerted by market developments?
Yes. In any case, the first signals of the last twenty-four hours are clear: the Stock Exchange and the financial sector do not want the RN at Matignon. But we must remain vigilant, because there are investors and there is civil society. And it is civil society that votes. However, in general, the rejection of markets begins to be reflected in civil society once the party in question is already in power, and in action, if I dare say. When Liz Truss came to power in the UK, she took risks on the public deficit, cutting taxes and spending more money at the same time. Bond markets therefore reacted, and interest rates rose. Not because the Bank of England was screwing up, but because bond market yields based on the cost of mortgages began to rise very significantly, with the government financing the deficit too quickly and too freely. That’s when people started to get outraged, because it caused costs to explode at the household level. There is less chance of this happening in France because, precisely, there is the euro, which offers a certain level of protection against this type of reaction from the bond market. But that doesn’t mean it can’t happen…
It’s hard to imagine that Emmanuel Macron, a former investment banker, made this decision ignoring the probability of significant repercussions on the stock market, especially since France had already found itself in a difficult budgetary situation recently… Some speak of a “strategy”, certainly risky, but calculated. What do you think ?
I won’t hide from you that when I saw the news on Sunday evening, I was… surprised. When the party of the presidential majority only makes 15% in the European elections, it is perhaps not the smartest decision to make. But there is a good chance that there is a strategic calculation behind this. For example, it is quite possible that Emmanuel Macron has in mind that when the markets see the voting intentions for the legislative elections (which will certainly give a large share to the RN), the situation will deteriorate even more on the side of the markets, and that there will be a sort of “awareness” effect. That said, I continue to think that Emmanuel Macron was very, very reckless, because in doing so he is playing with the French economy. The worst-case scenario would be a sort of replication of what happened in the UK under Liz Truss in 2022: the debt rising day by day, the markets putting up with it because they are confident, and then a One day, everything collapses because of a political change. In fact, Macron’s decision seems to me to be a mixture of courage and unconsciousness…
If the far right comes to power in France, could it not be that we are witnessing an Italian scenario? The economic consequences of the policies pursued by Giorgia Meloni in Italy were less dramatic than expected…
The Italian situation seems quite different to me from France. In Italy, the debt is very high, but it is not increasing, unlike France. The Italian government, with its faults, is modest on day-to-day spending – it balances its books on a day-to-day basis. Marine Le Pen’s party does not seem inclined to sacrifice some of its ideas for France to take this path.
In 2022, you wrote in The Telegraph that the French far left was the biggest threat to the Euro. Do you still hold this opinion?
I think that an arrival of the RN in Matignon would be dramatic, but if it had been La France insoumise, it would have been quite simply a disaster. [rires]. What I mean is that the RN’s program is obviously bad for the economy, but that of the far left is even worse. It involves even higher spending and greater state intervention in the economy, which is the last thing France can afford at the moment.
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