French Election Could Trigger Economic Crisis in Italy (and Early Signs Are Alarming)

The Stakes of the French Legislative Elections

All eyes are currently on France, following the results of the first round of legislative elections which saw Marine Le Pen’s Rassemblement National party coming out on top.
However, everything will be decided next Sunday when the runoff elections take place in 501 out of 577 constituencies.

Macron’s Strategy and the “Republican Block”

To prevent the right-wing in France from gaining a parliamentary majority and forming a government led by Marine Le Pen’s protege, Jordan Bardella, President Emmanuel Macron has called for a “Republican block” in the runoffs, which is already taking shape.

Both the Nupes coalition – including the Socialist Party, Jean-Luc Mélenchon’s La France Insoumise, the Greens, and the Communist Party – and Macron’s Ensemble party have decided to present a unified candidate in the runoffs to decrease the chances of victory for the Rassemblement National.

Potential Impact on France and Beyond

The outcome of these early elections in France will have a significant political impact not only domestically but also throughout Europe.
However, concerns are growing among analysts about potential market turmoil that could affect not only Paris but also Italy.

An article by Reuters highlighted worries expressed by Otmar Issing, former chief economist of the ECB, who likened the debts of Italy and France to a “sword of Damocles hanging over the monetary union,” destined to fall if not addressed.

Macron’s Warning and Economic Concerns

Macron has warned of a possible civil war in France if the right-wing wins the legislative elections, anticipating a scenario where he would have to coexist with a Prime Minister like Jordan Bardella from a different political background.

France has long struggled with public finances issues, always receiving a special treatment in Brussels.
However, this leniency could end with a right-wing government in power, risking economic instability and social unrest, although Macron’s reference to a civil war seems exaggerated.

A potential economic crisis in France would inevitably spill over to Italy due to its significantly higher public debt.
While the EU and ECB have tools to handle such a crisis, they might refrain from intervening if Marine Le Pen adopts a hardline stance once in power.

Italy as a Model for France?

A EU official mentioned Rome as a role model for Paris, pointing out how Prime Minister Giorgia Meloni softened her anti-EU rhetoric once elected in 2022.
Meloni’s alignment with EU policies on various issues helped Italy maintain favor with the Commission and financial markets, despite budget deficit increases.

Meloni’s shift towards a more pro-EU stance contrasts with her previous euroscepticism, suggesting that a similar adaptation from Marine Le Pen could determine the favor or disfavor from Brussels and Frankfurt towards France.
The implications for Italy could be severe in case of a French crisis.