Why the ECB will not save France from the financial crisis

The Challenge of France’s Public Debt

France holds the record for the highest public debt in Europe, amounting to 2.3 trillion euros.
The possibility of an extreme right-wing victory in the upcoming elections is raising concerns among investors.

The Rise of Rassemblement National

If Marine Le Pen’s Rassemblement National (RN) were to prevail in the first round of voting on June 30, financial markets are likely to experience further turbulence.
The European Central Bank stays on the sidelines, and Brussels observes with apprehension the prospect of a eurosceptic government.

Financial Implications

Currently, French 10-year bond yields stand at 3.1%, a level not seen since 2012.
Investors now demand an interest rate on French debts that is 0.7 percentage points higher than German ones of the same maturity.

Political Uncertainty

The financial situation of France may gradually worsen due to the ongoing political uncertainty leading up to the second-round vote on July 7.
The RN leaders have hinted at delaying significant changes until after the Paris Olympics to avoid disrupting the event.

Challenges Ahead

If Le Pen’s party implements their proposed policies, the budget deficit, currently over 5% of GDP, is set to increase.
Additionally, concerns shifting towards banks and heavily indebted companies could make it challenging for France to secure support.

The Role of the ECB and International Relations

The ECB’s Transmission Protection Instrument could be an ideal tool during turbulent times, but its usage is reserved for countries with sustainable public debt trajectories – a condition hard to meet for France presently.
International political goodwill could also play a critical role in supporting France, especially if it decides to adopt an anti-Brussels stance.

As the country navigates through these challenges, the potential consequences of its debt burden and political choices remain a focal point for investors and policymakers alike.