Big corporations will be on side. Bond markets will be appeased. And there will be plenty of reassuring words about dealing with the budget deficit. This week, the first round of France’s parliamentary elections is scheduled, with Marine Le Pen’s National Rally preparing to take power. This week, the Rally unveiled a program that will, if not please investors, then at least bring them under control. There’s just one problem: It’s also a program of stagnation, which means France’s uncontrollable debt will continue to grow.
None of Bardella’s proposals will help pull France out of stagnation
With just a few days to go until the vote, it is becoming increasingly likely that Le Pen’s RN will win a majority or take power in a leading coalition government. Jordan Bardella is the likely candidate to become prime minister. The party is clearly determined to avoid a “Liz Truss moment” by crafting an economic policy that will appeal to the bond markets. Bold spending pledges such as abolishing income tax for under-30s and VAT on 100 basic items have been dropped. Instead, they will carry out an “audit” to assess the state of the national finances (which, in case you were wondering, are not in good shape), and pledge to adhere to a deficit reduction program and EU fiscal rules. One of the main measures is a plan to take back 2 billion euros a year from the EU, which is likely to be a controversial proposal among the other 27 member states, to say the least.
That is undoubtedly smart politics. Macron hopes that a RN in power will crash the economy, discredit Le Pen and Bardella, and pave the way for his centrist coalition to be re-elected in presidential elections scheduled for 2027. It is perhaps not surprising that the RN has decided not to go along with it; instead, it will stick to its spending plan, blame a series of austerity measures on the president, and pick a fight with the EU.
There’s just one problem: it’s also a recipe for stagnation. Nothing Bardella proposes would do anything to pull France out of stagnation; in fact, if it had any effect, it would only hurt output even more. Replacing an asset-based wealth tax with a finance-based one would scare off investors and entrepreneurs, and even the small concessions on retirement age reform would only worsen long-term fiscal prospects.
The French economy is already very weak, with growth projected to be just 0.2% this year. It already has a budget deficit of 112% of GDP, one of the most indebted developed countries after Japan and the United States, and is scheduled to borrow another 5% of GDP this year. With zero growth, the debt burden will only get worse every year. Le Pen’s policies may be politically clever, but economically they are terrible. And they will get even worse if France’s financial crisis finally arrives.