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Parami News > Blog > Most Recent Stories > France’s expensive election promises raise concerns about profligacy that could push the country deeper into debt | Parami News
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France’s expensive election promises raise concerns about profligacy that could push the country deeper into debt | Parami News

Atulya Shivam Pandey
Last updated: June 24, 2024 3:02 pm
Atulya Shivam Pandey
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France’s expensive election promises raise concerns about profligacy that could push the country deeper into debt | Parami News
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Attractiveness of those promises is costly. Struggle to take down centrist government of President Emmanuel Macron. France’s far-right and far-left parties have promised to reduce fuel prices, cut the retirement age for workers and increase salaries in the forthcoming two rounds of parliamentary elections on June 30 and July 7.

The government budget already bloated by their campaign pledges will be at stake pushing up French interest rates as well as putting pressure on France’s relationship with the European Union.

“A snap election will likely replace Macron’s stumbling right-centrist government, whose campaign has abandoned any financial The guise of discipline.

Unrest began on June 9 when Macron lost the EU parliamentary election to Marine Le Pen’s far-right National Rally party.

Macron promptly called early parliamentary elections, assuming that French voters would unite against the first far-right government since World War Two Nazi occupation in France.

Macron is working together with another extreme party, which is named New Popular Front that comprises several left parties.

“The center has gone,” said Peterson Institute for International Economics senior fellow Nicolas Peron. Far away”. mainstream.” These words came from someone who had been a renowned economist in France.

Radicalism came in different ways to both The National Rally and The New Popular Front but they were not very close to either position.

High inflation rates, tight budgets at home and other problems make political extremes attractive. France’s economy is performing below expectations: According to International Monetary Fund (IMF), it will grow by only 0.7% this year compared with a disappointing rate of 0.9% in 2023.

Putting money into voters’ pockets was an economic promise that some economists put into a computer program. Their answer: At least tens of billions euros could be spent on this purpose.

However, last week markets became quieter when news about the political benefits of national rallies hit CAC 40 plunging it to the worst week in over two years. French government bond yields also rose amid concerns about public finances.

Macron admitted that the economic promises of the national rally “may make people happy” but claimed they would cost 100 billion euros ($107 billion) a year. He accused the left of having a plan that was “four times worse in terms of cost.”

The figures quoted by Macron were “pulled out of the government’s hat,” according to Jordan Bardella, president of France’s National Rally party, who is hoping to become France’s prime minister during election time. However, Bardera has yet to detail how much his party’s plan will cost or how it will be paid for.

Similarly, New Popular Front’s list of campaign promises does not show their costs or explain how they will be realized. However, it has pledged to “strip billionaires of privileges” and impose steeper taxes on high income earners as well as wealth and other forms of wealth. It says no increase in French debt is intended.

Jean-Luc Melenchon, leader of far-left France Unbowed party with most candidates in coalition said that it would take $200bn over five years for his party’s program which would generate extra €230bn ($246bn) by boosting French economy.

To cut the sales tax on fuel, electricity and natural gas from 20% to 5.5%, Bardella has promised, “Because I think that here in our country there are a million French people who can’t keep warm this year anymore or will have to reduce their trips.”

According to the Paris-based institute Montaigne, such commitment results in an annual loss of 9-13.6 bn euros ($9.6-14.5 bn). The Ministry of Finance expects even greater deductions from public finances: it amounts up to 16.8 billion euros ($18 billion) annually.

Once on the left, members of the New Popular Front vowed that as part of a package for some of France’s poorest people would include freezing prices for essential goods, fuel, energy and food.

The party also pledged a minimum wage rise that would raise monthly net wages by €200 ($214) to €1,600($1,711), while according to the Institut Montaigne these two commitments represent an annual bill on public purse between €12.5bn ($13.4bn) and €41.5bn ($44.4bn). Meanwhile, the institution warned that increased salaries could raise labor costs harming both economy and employment prospects.

Both right and left wings have promised to overturn Macron’s pension reform he pushed through parliament last year raising retirement age from 62 years old to 64 in order to help pay for pensions after facing huge street protests.

It might soon become again a politically divisive question how France can continue adequately financing its pensions as its population gets older.

France had been under pressure already before all these political troubles over its unbalanced government budget; furthermore EU regulators accused France for having too much debt – it has already more debt than its European peers with a public debt estimated at around 112% of GDP – in contrast euro area total is less than 90 per cent and Germany’s is only roughly 63%.

The EU has consistently insisted that the member states keep their annual deficits at or below 3% of GDP. However, even Germany and France themselves (the EU’s biggest economies) ignore these objectives.

Last year France had a deficit of 5.5%. It means that according to European Commission, France should join six other nations in initiating ‘excessive deficit procedure’ which is a long process ultimately resulting in a corrective action being taken by the country concerned.

The forthcoming elections to the lower house of French Parliament known as National Assembly. Even if his party loses, Macron will continue serving as president until 2027, potential uncomfortable cohabitation with far-right National Rally or left New Popular Front.

Macron who has done his best to curb France’s budget deficit will be less influential but he remains responsible for foreign affairs and defense; however, French bond yields may rise if left or right wing government dictates economic policy without solving the country’s budgetary issues.

It would be a terrible situation if this same thing were to happen in the United States. This is when Liz Truss, the then Prime Minister of Britain proposed a wave of tax cuts without any spending cuts to offset them which shocked the financial world; an event that had occurred back in September 2022. Truss’ plan led to immediate fall in the value of UK government bonds and pound notes. In the end, Bank of England stepped in and brought stability to financial markets after Truss resigned as Prime minister.

A similar scenario could occur should France’s right-wing or left wing government choose to disregard EU budget rules and go on a spending spree causing French bonds to plummet and interest rates to rise. Subsequently, The European Central Bank (ECB) may be forced into buying French bonds in order to push down returns thus calming markets.

“Unless any future government develops a credible plan to reduce the deficit, the ECB will be reluctant to bail out France itself,” said Andrew Kenningham, chief European economist at Capital Economics on Thursday (Capital Economics).

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