Gideon Rachman, chief foreign affairs commentator of the Financial Times, wrote on Monday that political turmoil in France could trigger a new round of euro crisis. The following is the original content.
French President Emmanuel Macron warned in late April that this was an existential moment and that “Europe could die.” Just weeks later, he appeared to be proving his point, announcing early elections that could plunge the entire European Union into a potentially deadly crisis.
Currently, the world's attention is focused on the current political situation in France. The first round of voting in the French National Assembly election will be held on June 30. The far-right National Rally is currently leading in the polls, with the far-left-led coalition New Popular Front in second place.
At best, a parliament dominated by political extremists would plunge France into a prolonged period of instability. At worst, it would lead to the adoption of profligate and nationalist policies that would quickly trigger an economic and social crisis in France.
A French collapse could quickly turn into trouble for the European Union, and this process would have two main transmission mechanisms. The first is fiscal, the second is diplomatic.
First, France is already in fiscal trouble, with public debt at 110% of GDP and the current government running a budget deficit of 5.5% last year. Both the far right and the far left are committed to massive spending increases and tax cuts that would increase debt and deficits while violating EU rules.
French Finance Minister Bruno Le Maire warned that a victory for either party could lead to a debt crisis for France, with its finances subject to supervision by the International Monetary Fund or the European Commission. Le Maire pointed to Britain’s reaction to the Truss government’s “mini” budget as highlighting how quickly markets can turn against governments that adopt reckless fiscal policies.
In fact, France’s fiscal crisis may be worse than the potential threat Truss posed to Britain’s fiscal situation at the time. In Britain, there is a mechanism to quickly fire Truss and restore rational government. But this task will be much more difficult in France, where both the far right and the far left have solid leadership and no more cautious, realistic politicians standing on the sidelines.
Second, France is one of 20 countries that use Europe’s single currency. Imagine what would happen if the risk premium on French bonds soared? The EU now has the mechanism to step in and intervene through bond purchases. But if the crisis was triggered by France’s unfunded spending promises, would the EU or Germany be willing to agree to such a move? The German government, which is currently struggling to save billions from its national budget, has no reason to support a bailout of profligate France.
France's far right and far left are also extremely skeptical of the EU, and have begun to attack the EU's dictates and express hostility toward Germany. The National Rally's election manifesto mentions "deep and irreconcilable differences" between French and German worldviews. Jordan Bardella, the party's likely candidate for prime minister, recently threatened to cut France's annual contribution to the EU budget by 2 billion to 3 billion euros.
During the Greek debt crisis, which lasted nearly a decade, Athens’s resistance to the European Union was ultimately overcome by the threat of expelling Greece from the eurozone — a move that would have destroyed the value of its savings. But expelling France from the eurozone — or the European Union itself — is almost unthinkable. Since the 1950s, the entire EU project has been built around Franco-German ties.
More likely, France would remain in the EU and the euro currency system but act as a spoiler. This would undermine the cohesion and stability of the EU, which is currently trying to unite against Russia.
Unless Macron resigns, which seems unlikely, he will continue to represent France at international summits and EU meetings. But barring a last-minute swing in the polls, the incumbent is likely to emerge as a severely weakened figure in the election.
Some of Macron’s European colleagues may quietly admire the image. But the overall impact of France’s decline and anger on Europe will be grim.
The original idea of the National Rally was to confront the European Union in the name of French sovereignty. But in recent years, far-right leaders have realized that hard-line Euroscepticism can scare and alienate voters and markets. After losing the 2017 presidential election, the National Rally quietly abandoned its rhetoric of leaving the EU.
An economic crisis, combined with a confrontation with the EU and Germany, could cause the National Rally to revert to its nationalist and confrontational instincts. Or the realities of governing could force it to compromise with the EU.
Those with a good memory will remember the economic crisis in France in the early 1980s, when the Socialist government tried to implement a radical left-wing agenda. That crisis ultimately led to the rise of Jacques Delors, first as French finance minister and later as president of the European Commission. In Brussels, Delors pushed for major advances in European integration and the introduction of the euro.
History is unlikely to repeat itself in exactly the same way. Likewise, decades of experience have shown that it may be a mistake to assume that the EU is incapable of overcoming seemingly mortal threats.
The article is forwarded from: Jinshi Data