Emmanuel Macron’s decision to call a surprise election after losing to the far-right in Europe’s vote has made financial markets uneasy. If the far-right gains big in France’s election, Macron might find it tough to govern with a parliament that doesn’t support him.
This could mess up his plans to run the country and make people doubt if the government can handle money matters well. That’s why stock prices dropped, including those of big banks like Société Générale.
The decision by French President Emmanuel Macron to call a snap election after losing to the far right in a vote for European lawmakers roiled markets and the euro Monday.
Shares of major French banks like Société Générale, BNP Paribas, and Credit Agricole suffered notable losses, while the euro depreciated against both the US dollar and the British pound. Macron’s decision to dissolve the French parliament and announce elections came in response to exit polls indicating his Renaissance party’s anticipated defeat by the National Rally, a far-right opposition group.
The ensuing elections are scheduled for June 30 and July 7, potentially reshaping the composition of the National Assembly and complicating Macron’s ability to govern effectively.
Emmanuel Macron
The evolving political landscape in France raises concerns about the continuity of Macron’s economic policies, particularly regarding unemployment reduction and fostering tech investment. The prospect of a coalition government or a significant shift in parliamentary dynamics adds layers of uncertainty to economic forecasts.
Analysts highlight the potential implications for France’s fiscal health, with the country grappling with high government debt and a persistent budget deficit, which reached 5.5% of GDP last year.
Credit rating agencies like S&P have downgraded France’s long-term credit score due to concerns over its deteriorating budgetary position. Despite affirmations about the country’s capacity to manage its debt, the widening budget deficit and political uncertainty are worrying investors.
Bond markets reflect this apprehension, with yields on French government bonds rising to their highest levels since late November. The widening gap between French and German bond yields signals heightened risk perception among investors, particularly regarding France’s fiscal outlook.
Economists warn that a right-wing majority in the French parliament could hinder reform efforts and exacerbate concerns about the country’s budget deficit.
The uncertainty surrounding France’s political future and its implications for economic policy contribute to market jitters and underscore the challenges facing Macron’s administration in navigating the country’s economic recovery and fiscal stability amidst shifting political dynamics.
