The Irish Times view on the French election: significant economic risks from populist policies

The decision by French president Emmanuel Macron to call a snap general election has obvious political consequences for one of the EU’s biggest member states. But it is also economically significant, as shown by some tremors on the financial markets, where the price for France of raising new debt has edged higher. The populist policies on offer by Macron’s opponents risk worsening France’s public finances and investors are nervous.

Looking at what is on offer, they are right to be. The Rassemblement National (RN) led by Marine Le Pen, has promised big cuts in indirect taxation and a reversal of Macron’s increase in the pension age, which would return it to 62 from 64. They have no significant tax-raising proposals to help pay for this. The left, meanwhile, also lack a credible policy, offering huge tax increases on the wealthy and business to pay for higher spending.

Despite warnings from economists and the tremors on the market, a weekend opinion poll showed public support for RN’s economic plans, reflecting a willingness to give the party a chance.

Macron appears to be getting little credit for the low rate of unemployment and his warnings about the risks of electing the opposition are not hitting home. The French deficit of 5.5 per cent and a national debt at 110 per cent of GDP leaves little room for manoeuvre and means the markets will watch carefully what happens next.

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The outcome of the election remains unclear – and, whatever happens, president Macron remains in office for now. But on any likely outcome, fiscal populism is likely to be a powerful force in France’s new parliament, threatening clashes with the president and the EU, which has already been eyeing the country’s deficit. And possibly leading to further nerves in the market.

Whether this develops into deeper financial upheaval remains to be seen. The rise of populism is due in part to a feeling that traditional centrist politics has not delivered. But promising unfunded higher spending in a country whose public finances are already under pressure is a recipe for trouble.