Will French elections spark the next euro crisis? Leibniz Center for European Economic Research
Far-right and far-left populist parties in France are making campaign promises that could cost billions.
What happens to the euro if either of these parties get voted in?
Europe's second-largest economy is already groaning under a mountain of debt equaling roughly 110% of GDP. Last year, France's trade deficit was running at about 5.5% of the country's overall economic output.
Both mean trouble when measured according to the EU's Maastricht Treaty, which only allows for a 3% trade deficit and a maximum sovereign debt of 60% of GDP.
Things could get worse. It's estimated the campaign promises being made by the far right and far left could add as much as €20 billion ($21.4 billion) annually in new spending to the budget.
Some experts have said this is a conservative estimate, and that the plans could be costlier still.
The strict parameters of the Maastricht criteria were eased during the COVID epidemic and have remained more flexible since. The eurozone's latest framework for steering economic policy only recently went into effect, on April 30.
There are still limits for debt and deficit, but the new framework gives nations far more wiggle room regarding how and when they get their financial house in order.
Still, Codogno fears that may not be enough for some countries.
"France could become the first country to intentionally flout the new fiscal framework agreements," he said.
The blackmail potential posed by highly indebted states is real.
To date, debt and deficit transgressions by individual states have suffered little consequence from the European Commission or the European Central Bank (ECB).
Heinemann of the Leibniz Center expert at the German-based Leibniz Center for European Economic Research,.is critical of the fact that the European Commission has also been far too lenient on debtor nations in the past.
He feels the key role that the European Commission plays in enforcing debt rules is one of the central design flaws of the entire eurozone system.
Deutsche Welle 29 June 2024
Leibniz Center for European Economic Research
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