France's Political Groups Pledge Billions for Spending Power Boost

French Political Groups Promise Billions in Election Pledges Despite Fiscal Concerns

In France, the upcoming legislative election sees three major political groups vying for power, each committing to allocate over €10 billion annually to bolster spending power, despite ongoing challenges in managing the country's budget deficit. The leftist New Popular Front leads with a pledge of €29 billion per year for purchasing power alone, as per a study by the Institut Montaigne. However, the analysis did not cover the full extent of the parties' promises.

France's public finances were already under strain, and the new cost estimates follow the European Union's decision to subject France to a special procedure for excessive deficits, potentially impeding ambitious spending plans while adhering to EU regulations. Furthermore, S&P Global Ratings downgraded France last month.

On Thursday, France plans to issue bonds for the first time since Macron's decision jolted financial markets, leading to a rise in French bond yields and impacting the stock market. The far-right National Rally's commitments, including VAT reductions and lower employer charges for low-paid workers, are projected to cost €12.1 billion in 2025, with expenses growing in subsequent years. The party's proposal to tie retirement payments to inflation is anticipated to cost €27.4 billion over three years.

Key Takeaways

• French legislative election promises by major groups could cost over €10 billion annually for spending-power alone.
• Leftist New Popular Front's promises estimated at €29 billion per year for purchasing power.
• Far-right National Rally's tax cuts and charge reductions projected at €12.1 billion in 2025.
• Macron's party and allies' platform estimated to cost €12.2 billion yearly.
• Concerns over economic impact as France faces EU deficit procedures and recent S&P downgrade.

Analysis

The surge in election pledges by French political groups, totaling over €10 billion annually, exacerbates fiscal concerns amidst EU deficit procedures and an S&P downgrade. These commitments, particularly the leftist New Popular Front's €29 billion pledge, risk deepening France's budget deficit and could strain public finances further. Short-term impacts include market volatility and increased bond yields, while long-term consequences might involve stricter EU fiscal oversight and potential credit rating downgrades. This spending spree, if unchecked, could undermine France's economic stability and investor confidence, complicating debt management and economic recovery.

Did You Know?

• Institut Montaigne: A renowned French think tank providing independent analysis and policy recommendations across various societal and governance aspects, including economic and social policies.
• European Union's special procedure for excessive deficits: A mechanism under EU regulations where member states with high public deficits (over 3% of GDP) and debt levels (over 60% of GDP) are subject to monitoring and recommendations to rectify these imbalances, aiming to uphold economic stability within the Eurozone.
• S&P Global Ratings downgrade: Standard & Poor's (S&P), a leading global credit rating agency, assesses the creditworthiness of countries and corporations. A downgrade indicates a higher risk of default on sovereign debt, potentially escalating borrowing costs and affecting investor confidence.