Europe is distancing itself from the core, with financial market fluctuations echoing this change. Philip Lane, the prime economist at the European Central Bank (ECB), has dismissed concerns over the French bond market in the previous week. However, fear lurks in his mind as it should. The anticipated French government-to-be, leaning either toward the far right or the extreme left, has caused jitters among investors, who fret over disruptions to the established peace where governments act as per capitalist dictations.
Italy has traditionally been a hotbed of financial instability for Europe. Yet, a tumult originating from France is infinitely more unsettling. France’s uniqueness stems from its crucial role as the foundational stone for numerous European establishments. Old-timers would recall the “franc fort” debacle of 1981. Voters, wearied by the economic downturn of the late 70s, elected the socialist government championed by Francois Mitterrand. These socialists promised to enlarge the budget deficit to alleviate the recession.
This promise set off a wave of panic sales of the French currency, the franc, which was met with the Bank of France increasing its interest rates, thereby exacerbating the economic conditions. Such actions threw the financial rapport between the German and French currencies, the monetary cornerstone of the EU, off balance. Mitterrand found himself in a dilemma: should he preserve France or Europe? He decided upon the latter, conceding to austerity measures in place of the originally committed expansionist budget. To the dismay of French nationalists, this incident underscored France’s constant servitude to Europe, relegating French economic interests to a secondary status.
Marine Le Pen, an influential French figure, implicitly holds this view, assertively claiming that the EU is stifling France. Interestingly, this sentiment is shared by the French left. Both the labour-oriented left and nationalistic right interpret economic dynamics through a Marxist prism: fear in capital indicates a favourable position for the workers. Both factions envision the economy as a zero-sum game: if lenders, those who provide loans to governments, are thriving, it implies that the labourers are struggling. This polarised perspective is also shared by financial markets who consider expansion in budget deficits and government debts as harbingers of disaster, typically predicting default. However, the reality is that the interplay between the economy and money surpasses these stark divisions, and is more sophisticated, fluid and intricate.
While Emmanuel Macron seems to effectively overlook struggling French workers, offering little more than hard words and encouragement to seek better employment, Marine Le Pen appears to understand their plight. Le Pen displays immense empathy towards disgruntled employees, assuring them that she will support them, although the specifics of her promises remain uncertain. Her party’s agenda, the National Rally, is imbued with fiscal populism, including proposals such as reducing the retirement age for all workers in France.
Le Pen plans to boost public sector salaries, alongside implementing exemptions on pay rises from employer contributions, making it less costly for employers to increase workers’ net wages. She is in favour of taxing the wealthy and the earners at the high end, in addition to financial assets. She also supports stringent immigration controls and the protection of French industries. Furthermore, Le Pen aims to reduce the average person’s energy costs by as much as 30 per cent.
It is important to mention that the populist right-wing views of the National Rally starkly differ from the beliefs upheld by Les Républicains, the traditional conservative right-wing. They advocate for a routine centre-right mix of tax cuts across the board and smaller government.
Even though precise figures are not readily available, it is clear that Le Pen’s programme would cause a surge in the deficit. When she ran for the president two years ago, an approximation of around €100 billion per annum was speculated. For a €2,700 billion economy, that’s relatively minor. Coupled with a GDP savings ratio of 17 per cent, equalling close to €500 billion annually, one of the EU’s highest, France can comfortably afford to increase its budget deficit. However, most economic experts overlook this fact, leading to a misconception about France’s financial stability.
The real challenge for France is too much saving, rather than excessive spending. But that’s a discussion for another day. At present, the prevailing narrative is that whether under a left-wing or right-wing administration, France could potentially face default or debt issues. Consequently, the interest rate on French government debt is on the rise, influencing other nations’ rates that follow France’s lead.
The European Central Bank (ECB), including notable member Philip Lane, found themselves in a unique position during the global health crisis. They adjusted their primary rules, allowing them to purchase the bonds of nations in financial distress due to pandemic-induced lockdowns. Italy benefitted greatly from this change as an unexpected end-buyer emerged in the form of the ECB. This is a primary reason for why Italy’s bond market survived this tumultuous period. This also clarifies why the generally anti-EU Italian Prime Minister, Giorgia Meloni, manages to show diplomacy during EU institutional gatherings – she requires the financial support.
French and Italian right-wing leaders push for an EU safeguard when convenient, despite their fiscal paths being in direct conflict with the AfD, the right-wing party from Germany. The latter firmly believes in balanced budgets and rejects rescuing any nation through Central Bank bailouts. The German right prioritises financial integrity, favouring smaller governments, tax reductions, and orthodox economical strategies. These are precisely the policies blamed by French and Italian right-wing factions for their present financial state. It’s up for debate how these deep-rooted economic discrepancies will impact a potential right-wing alliance across the EU in the future.
Historical political trends hint towards cultural issues overshadowing economic ones. Nationalistic right-wing factions across Europe are bound by a shared ideology. They envisage a Europe that is, was, and always should be white and Christian in its cultural ethos. They perceive immigration, particularly from Islamic regions, as detrimental. For them, a nation earns its authority from its ethnicity. The ongoing Euros clearly refute this exclusive ‘white and Christian’ narrative, showcasing diverse teams representing various nations.
Still, facts rarely hinder a compelling narrative.