The ongoing political crisis in France is causing concern in the financial markets and criticism from economists. Their object is mainly the ongoing uncertainty, which is paralyzing investment and consumer intentions, as well as the lack of consensus to control the growing debt and the government deficit.
The chairman of the MEDEF business union, Patrick Martin, has already warned that there is a real risk of recession in France, writes ARD. According to him, the country is already in a "very difficult situation". "There are no orders, tariffs are having a negative impact and the French threat is becoming a fact again."
The head of the "Carrefour" supermarket chain, Alexandre Bompar, points out that the modest French growth is currently due only to consumption. But uncertainty is the worst thing for consumers and is holding back their willingness to spend.
Debt ratio at 114 percent
Like his predecessor Michel Barnier last December, Prime Minister François Bayrou is now on the verge of resigning over his austerity program. It now looks like he will lose a confidence vote scheduled for September 8, to which he is linking a 43.8 billion euro package of tax increases and spending cuts, ARD notes.
With a debt ratio of 114 percent of GDP, France is well above the eurozone average, the German public media outlet also said. European rules set an upper limit of 60 percent. The limit has also been exceeded for new obligations - it should be three percent of GDP, and this year it will reach 5.4.
At the same time, the difficult geopolitical situation is affecting the economy. Experts expect GDP growth to be only 0.6 percent this year - after 1.1 in 2024.
Political stalemate worries stock markets
Along with parliamentary opposition to Bayrou's center-right government, unions have also announced national strikes and demonstrations against the austerity policy.
Resistance from both the left and right of the political spectrum is causing concern in financial markets. France's leading CAC 40 index has not moved since May, and since last week, ten-year French government bonds have been yielding more than 3.5 percent, which is close to the highest level since the last debt crisis. Therefore, bond buyers want higher risk premiums, and the country's banks are also under pressure due to political turmoil.
European Central Bank President Christine Lagarde said on this occasion that she was monitoring the risk premiums on French government bonds "very carefully". IMF intervention does not seem likely for now, writes ARD, but according to Lagarde - any risk of the fall of a government in the eurozone is a cause for concern.
However, the ECB head notes that banks are now in better shape than during the last major financial crisis. She points out that the industry is not the source of the current risk. "But it is the markets that assess the risk in all situations of this kind."
Author: Michael Strempel (ARD)