With France in the grip of domestic chaos after Emmanuel Macron’s snap election resulted in a gridlocked legislature, a UK-based banking expert has warned the crisis has “very serious” implications for the entire Eurozone.
Sunday’s results saw the left-wing Popular Front emerge as the largest single group in the National Assembly, with 182 seats. Mr Macron’s centrist Ensemble alliance won 163, and Marine Le Pen’s far-right National Rally took 143.
Jean-Luc Melenchon is currently advocating an increase in public spending of £125 billion over three years in a move which spooked the financial markets yesterday.
Bob Lyddon, founder of Lyddon Consulting Services, a Brexiteer who has issued warnings about the monetary union, said the uncertainty was likely to have consequences well beyond France’s borders.
He told Express.co.uk: “France’s debts are estimated at over 110 percent of its economy (GDP) and that does not include its liability for repaying the EU’s debts under its €750 billion Coronavirus Recovery Fund, or for its guarantee of €87 billion for the euro bailout scheme the European Financial Stability Facility.
“France lost its AA credit rating from Standard and Poor’s in June, and the European Financial Stability Facility consequentially lost its AA rating as well.
“How long before the EU itself, the European Investment Bank, and the European Stability Mechanism are also downgraded because France’s ability to support them has reduced?”
US-based credit rating agency Standard and Poor’s had already issued a note suggesting the hung parliament in France was likely to “complicate policymaking”, Mr Lyddon pointed out.
He added: “It is a warning of a further downgrade, in case of ‘sustained weakness in economic growth’.
“France has a year at most to put its house in order, and it won’t, given the political landscape.
“The next step down is to A+, with the European Financial Stability Facility following, and to a level where it would lack any credibility as part of the Global Financial Safety Net which was constructed to avert the risk of another Global Financial Crisis.
“This is very serious for the Eurozone and the EU as a whole, and indeed for the post-crisis structure of the global financial system.”
Mr Macron on Monday asked his Prime Minister Gabriel Attal to continue handling day-to-day affairs, less than three weeks before the start of the Paris Olympics. The President is heading to Washington tomorrow for a NATO summit.
The top negotiator for the Socialist party, Johanna Rolland, said that the future prime minister will not be Mr Melenchon.
Speaking on France 2 television, she suggested the leftist coalition could possibly work with centre-left members of Macron’s alliance.
She added: “We will be open.”
Mr Macron has three years remaining on his presidential term.