With the Paris Olympics concluded, France’s political instability is expected to resurface, likely exerting renewed pressure on the euro and testing the resilience of the European economy, cautions the CEO of one of the world’s largest independent financial advisory and asset management firms.
Nigel Green of deVere Group issued this warning following a brief reprieve from the underlying economic and political pressures.
As the global spectacle fades, France faces a harsh economic reality that could jeopardize not only its domestic stability but also the broader European financial landscape.
The deVere CEO says: “President Emmanuel Macron, who managed to defer a brewing political crisis during the Games, must now face the consequences of his high-stakes gamble—a snap legislative election called just before the world’s attention turned to Paris.
“The result? A hung parliament that leaves Macron without a clear mandate, complicating his ability to push through critical economic reforms at a time when France’s fiscal health is under intense scrutiny.”
France’s budget deficit has ballooned in recent years, exacerbated by the economic fallout from the pandemic and subsequent inflationary pressures.
The European Commission and international bond markets are now demanding that France reduce its deficit, a task that will require significant fiscal tightening.
“However, with a fragmented parliament and growing public discontent, implementing the necessary budget cuts and tax reforms is anything but straightforward.
“The looming 2025 budget approval process will be a critical test of Macron’s ability to govern effectively in a politically fractured environment,” notes Nigel Green.
The stakes are high, not just for France but for the eurozone as a whole.
He continues: “France is one of the largest economies in the eurozone, and its fiscal policies have a direct impact on the stability of the euro.
“Investors are already nervous, as evidenced by the spread between German and French 10-year bond yields—a key indicator of market confidence.
“Although this spread has stabilized recently, it remains close to its widest point, signaling persistent concerns about France’s political and economic stability.
“Any misstep in managing the budget or handling political negotiations could widen this spread further, putting downward pressure on the euro and increasing borrowing costs for France and other eurozone countries.”
The financial markets are closely watching how France faces down this precarious situation.
“The temporary political truce declared by Macron during the Olympics bought him some time, but that window is rapidly closing.
The delay in appointing a new prime minister – necessary to form a government capable of passing the budget – has only added to the uncertainty.
“Financial markets abhor uncertainty, and the longer this political gridlock continues, the more likely it is that market confidence will erode, leading to capital outflows and a weaker euro.”
Moreover, France’s internal struggles are occurring at a time when the eurozone is already facing significant economic challenges.
“A fiscal crisis in France could exacerbate these issues, potentially triggering a broader crisis of confidence in the euro, impacting trade, investment, and economic growth in Europe and beyond.”
Nigel Green concludes: “The decisions made in the coming weeks will not only shape the future of Macron’s presidency but also determine the economic trajectory of France and the stability of the eurozone.
“The international financial community will be watching closely, as the outcomes in France could set the tone for the euro’s performance and the broader European economic outlook in the years to come.”
