French President Emmanuel Macron has taken a big chance by calling early parliamentary elections. This action of the president impacts the nation’s economy. Financial market always disagrees with sudden political changes especially in countries that are stable in economy like France. During the time of elections, voters express their opinion. But at the same time, the financial market responds everyday. Right now many officials in the market are unhappy with the president Emmanuel Macron’s decision.
Due to this announcement, investors who decide to buy French and German government bonds are worried. French and German bonds‘ interest rate difference reached its highest point on Monday of this year. It simply highlights that investors are concerned about the direction of France’s finances.
Despite many political problems, debt of different EU countries along with French debt have been steady. Last year France spent more than its budget and faced a deficit of 5.5%. Bond investors didn’t mind this growing debt at first. But recently, France’s credit rating was lowered twice. First by Fitch Ratings in October, then by S&P Global Ratings in May. They did this because the country’s debt was getting worse day by day. S&P thinks that the deficient rate of France will keep increasing by 2027. This is because the nation will still spend more than it earns.
The European Commission predicts a tiny increase to 5.3% for 2024. Analysts at UBS AG Group think it’s very probable that the commission will suggest putting France under a so-called Excessive Deficit Procedure as soon as this month. If the EU Council agrees, France would need to decrease its deficit by at least 0.5 percentage points each year and ensure its overall debt is clearly decreasing. The new government must submit a multi-year fiscal plan by late September. Investors won’t be happy about this.
Now there is a good chance for Macron. Hemight have to work with a far-right prime minister from Marine Le Pen’s party. According to investors this would be a big issue for 2027. But it is happening now.
According to Stefan Koopman from Rabobank, Investors are worried. No doubt that Macron is a brave personality but this action may be the cause of many problems after recent problems. E Things were already not in a good direction and cnow they’re worse. On Monday, the euro went down 0.5% against the dollar, and the French stock market did worse than other European markets.
All of these financial problems do not come suddenly. The French Treasury has issued just over half of its €314 billion (12.4 trillion baht) debt target for 2024. Investor interest has been strong, with three major deals attracting over ten times the amount offered.
However, a repeat of the 2017 bond market troubles before Macron’s first presidential win is possible.
Investors tolerate these issues. The euro crisis is a sign that shows how harmful the political uncertainty can be. Many disruptions will be on the way, if the National Rally party’s prime minister takes office.However, the party no longer wants France to leave the European Union.
The brave action of France’s president might force Marine Le Pen to clearly discuss her economic plans. These plans are still unclear for many years. Her platform, which supports lower immigration, could harm the economy, especially if Mr. Macron’s decision to raise the retirement age from 62 to 64 is reversed.
Investors are likely to avoid French securities until there is more political clarity after the second-round results on July 7. Mr. Macron might see benefits in calling a surprise election, but this could hurt investor confidence.