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Macron’s Snap Elections Spark Financial Turmoil in France

The French stock market tumbled to its lowest level in two years on Friday following President Emmanuel Macron’s unexpected decision to hold snap elections. This move, intended to consolidate power, has instead sown uncertainty, prompting Finance Minister Bruno Le Maire to warn of a potential financial crisis.

The CAC 40, France’s benchmark stock index, plummeted 2.7 percent, capping a weeklong decline of over 6 percent. This sharp drop erased all gains made since the beginning of the year. Among the hardest hit were France’s leading banks, BNP Paribas and Société Générale, which hold significant amounts of French sovereign debt.

Investor anxiety was palpable as the risk premium on French government bonds over Germany’s rose to its highest level since 2017. This premium, a key indicator of investor confidence, saw its most significant weekly surge since the euro debt crisis in 2012.

Le Maire cautioned that France could face “guaranteed economic collapse” if extreme political factions gained power. He specifically criticized the populist economic platforms of both the far-right and far-left, suggesting they could further destabilize the already heavily indebted nation.

Economic analysts draw parallels to the UK’s financial turmoil in 2022, when Prime Minister Liz Truss’s ambitious tax cuts and spending plans triggered a market meltdown. Nicolas Bouzou, founding director of Asterès, a Paris-based consultancy, highlighted the risks of a similar crisis if Marine Le Pen’s National Rally were to implement its €100 billion populist program.

Political polls indicate a growing likelihood that the National Rally, under the leadership of Le Pen and her protégé, Jordan Bardella, could gain unprecedented influence in the French government. This situation arises despite Macron’s strategic gamble on snap elections following his centrist party’s defeat in the European Parliament elections.

Simultaneously, France’s left-wing parties have coalesced into a grand coalition, the Popular Front, posing another significant challenge to Macron’s party. Economists warn that this could lead to governmental gridlock and economic stagnation.

Holger Schmieding, chief economist at Berenberg Bank, remarked, “Everything was looking so nice for Europe until about a week ago. But now we face the risk of uncertainty.”

The sudden announcement of new parliamentary elections has thrown French politics into disarray, confusing voters and creating chaos on the right while unifying the left. This political instability has further shaken investor confidence, as evidenced by the sharp rise in France’s 10-year government bond yields. At 3.12 percent, these yields are now closer to those of Portugal than Germany, highlighting the market’s growing unease.

Amid this turmoil, Macron’s officials have scrambled to highlight the economic successes achieved during his tenure, including the creation of two million jobs and a historically high employment rate. France has also been named the most attractive country for investors in Europe for five consecutive years by Ernst & Young, securing billions of euros in investments.

However, Macron’s rivals argue that these achievements primarily benefit corporations and the wealthy. Bardella, likely to become the next prime minister if the National Rally prevails, has promised to restore purchasing power to struggling households and tackle illegal immigration. His proposed measures include slashing sales taxes on energy and food, and authorizing a 10 percent salary increase across the board.

Le Maire has fiercely criticized these plans, calling them “Marxist” and predicting they would further erode investor confidence. He also warned that the Popular Front’s economic agenda, which includes raising the minimum wage and lowering the retirement age, would lead to mass unemployment and potentially force France out of the European Union.