The gain of 30 seats by far-right parties in the European Parliament out of 720 seats with 60% still held by the centrist coalition means that policy may shift slightly to the right—but most likely only in language, as European laws are also approved by the European Commission before being implemented. Most European policy is still decided at the country level. While we believed a shift to the right in the election was likely, the surprise was French President Macron announcing a national election on June 30 with a run-off on July 7. The election will determine the next prime minister of France.
A win by France’s populist National Rally party would put them in control of France’s domestic priorities and spending. Their proposals seem expensive: boosting pension payouts (reversing President Macron’s pension reform and lowering the retirement age to 62 from 64), cutting the Value Added Tax or VAT (on food, electricity, and gas), exempting younger workers from income taxes, and a “Buy French” policy that goes against EU rules.
Rating agency Standard & Poors recently downgraded France’s debt from AA to AA-. France’s budget deficit currently sits around 5% of GDP and is expected by the International Monetary Fund to remain above the Eurozone’s stated 3% threshold through the end of the decade. There doesn’t seem to be much room for additional spending. Although other advanced economies including the U.S., U.K., and Japan are also projected to have similar deficits in the years ahead, France could have the widest deficit among them if expensive proposals are implemented.
