(28 June 2024 – France) The European Central Bank (ECB) will have its first real test of its ability to contain potential economic contagion from a French political and sovereign debt crisis.
Paris may find itself isolated if France's snap election results in a far-right “eurosceptic” government that could strain ties with other European capitals and test the very foundations of the European Union (EU). Questions remain about how Marine Le Pen's National Rally party will fund costly spending plans within the eurozone's newly installed budget rules and whether the ECB will intervene to help if financial markets turn on France.
The ECB could respond to economic instability by purchasing bonds of other countries that do respect the EU's fiscal framework.
As it stands, Marine Le Pen’s National Rally is on track to dominate the first round of France’s legislative election, projected to capture up to 34.2 percent of the vote. The result deals a mortal blow to President Emmanuel Macron and sets the stage for a far-right party to control the French government for the first time in its modern history.
Senior German government members were dismayed by Macron's surprise decision to call elections that could pave the way for an RN-led government, comparing it to former UK prime minster David Cameron's losing gamble on the Brexit referendum.
“If a country can just ignore the rules and be helped by the central bank, you'll get a lot of doubts about the future value of the euro and the future cohesion of the euro” commented Berenberg Economist Holger Schmieding for Reuters.