Home World Desperate Emmanuel Macron's deal with hard-Left 'set to cost France £168bn'

Desperate Emmanuel Macron's deal with hard-Left 'set to cost France £168bn'

Emmanuel Macron‘s deal with the hard-Left may cost £168billion with uncertainty sparked by France’s Parliamentary elections poised to rattle markets and the European Union’s second largest economy.

The Left-wing coalition which was hastily arranged to see off the threat of France’s far-Right National Rally party was tipped to win the most seats according to the exit poll, but will fail to win an outright majority while Mr Macron’s centrist alliance came second and RN third, shock polling published after the snap vote on Sunday (July 7) showed.

With no bloc securing a clear majority, France faces the kind of uncertainty which can spook markets and upset an economy. The result also looks set to cast a shadow of political instability over the Paris Olympics, which begin in less than three weeks.

France’s New Popular Front coalition brings together greens, socialists and communists. Together they have pledged to increase business taxes, raise the minimum wage, impose food price controls and return the right to retire at 60.

Should the coalition’s policies be introduced, they could cost France £168bn (200 billion euros). The New Popular Front’s 23-page list of campaign pledges failed to include costings or to detail how they would be financed. But the coalition vowed to “abolish the privileges of billionaires” and tax high earners, fortunes and other wealth more heavily.

Far-left leader Jean-Luc Mélenchon said his party’s platform would require £168bn (200 billion euros) in public spending over five years, but would generate £194bn (230 billion euros) in revenue by stimulating France’s economy.

Meanwhile RN pledged to slash VAT on energy bills, exempt under 30s from income tax and return the state pension age to 62. The plans of the party led by Jordan Bardella had also sparked concerns among some analysts.

The news National Rally was in the ascendant after the European elections had sent France’s CAC 40 stock index tumbling to its worst week in more than two years towards the end of June, although the market later calmed.

Mr Macron had said National Rally’s economic pledges “perhaps make people happy”, but claimed they would cost £84.4bn (100 billion euros) annually. He also took aim at the left’s plans, saying they were “four times worse in terms of cost”.

Mr Bardella vowed to slash sales taxes — from 20 percent to 5.5 percent — on fuel, electricity and gas. The Paris-based Institut Montaigne think-tank estimated the cost of that pledge alone at between £7.6bn to £11.4bn (9 billion to 13.6 billion euros) annually in lost revenue.

France’s Finance Ministry estimated an even bigger dent in the public coffers of £14.1bn (16.8 billion) euros per year.

The New Popular Front’s pledge to freeze prices and bump up the minimum wage led the Institut Montaigne to say those two pledges together could amount to an annual hit of between £10.5bn (12.5 billion euros) and £35bn (41.5 billion euros) to the public finances. It also warned a wage hike could hurt the economy and jobs by making labour costlier.

Both the Left and the Right pledged to roll back pension reforms Mr Macron pushed through parliament last year in the face of massive street protests, raising the retirement age from 62 to 64 to help finance the pension system.

Doing so would risk reopening the politically divisive question of how France can continue to adequately fund pensions as its population ages.

Even before the latest political turbulence, France was under pressure to do something about its unbalanced government budget. EU watchdogs have criticised the country for running up excessive debts.

France is already operating with a higher debt load than European neighbours, with public debt running at an estimated 112 percent of the size of its economy. That compares with less than 90 percent for the eurozone overall and Germany’s 63 percent.

The EU has long insisted member states keep annual deficits below three percent of gross domestic product, but those targets have frequently been ignored, even by the EU’s biggest economies – Germany and France.

France’s deficit last year stood at 5.5 percent. The EU Commission recommended it and six other countries start an “excessive deficit procedure”, beginning a long process which can ultimately force a country to take corrective action.

Mr Macron, who had sought to rein in French budget deficits, will now have a greatly reduced say over economic policy, though he would still oversee foreign and defence policies.

With a leftist government calling the shots on economic policy, France’s budget problems would likely go unresolved, leading to higher yields on French bonds.


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