Markets fear the French far right could trigger a financial crisis

Investors are worried France could be facing a financial crisis if the political center collapses in upcoming parliamentary elections, leaving far-right populists in charge of the European Union’s second-biggest economy.

Investors are worried France could be facing a financial crisis if the political center collapses in upcoming parliamentary elections, leaving far-right populists in charge of the European Union’s second-biggest economy. President Emmanuel Macron called the snap elections Sunday after his party lost to the far right in a vote for EU lawmakers, a shock move that rattled markets for French stocks and government bonds. There has been widespread speculation since then that the National Rally, the party of far-right doyenne Marine Le Pen, is poised to become the most powerful force in parliament, unseating Macron’s centrist bloc. Such an outcome could make it harder to reduce France’s huge government debt pile, equal to 110.6% of gross domestic product at the end of last year, and could even add to it. A bitterly divided parliament would also struggle to cut the budget deficit — the gap between government spending and tax receipts — which reached 5.5% of GDP last year. “If Le Pen calls the shots in parliament and pursues major parts of her expensive fiscal and protectionist ‘France first’ agenda, the result could be a Liz Truss-style financial crisis,” Berenberg economists wrote in a note Friday, adding that, for now, this was “a serious risk, not a forecast.” The British pound and UK government bonds sold off sharply in September 2022 after former Prime Minister Truss unveiled plans to increase borrowing to pay for tax cuts. Mortgage rates soared as investors demanded much higher premiums for owning UK debt. Truss resigned soon after, becoming the shortest-serving prime minister in British history.