The Tribune

By Ricardo Evangelista

ActivTrades

Back in April, Emanuel Macron ominously said that Europe (referring to the European Union (EU) was mortal and could die. What the French president meant by this was that the EU, and its free circulation of goods, capital and citizens, was not guaranteed to last forever and requires nurturing.

The European project rests on several pillars, including varying degrees of economic, political and defence integration that, in turn, require trust and a levelled playing field between the various member countries. This integration between past rivals has allowed, since its inception, almost eight decades of prosperity and peace in a part of the world that has seen some of the deadliest conflicts in human history.

Since his April statement, Mr Macron has done his best to go against his own advice. Disappointed by the results of the EU parliamentary poll in France, which gave a resounding victory to the nationalistic RN party, and with the president’s own political force losing on a large scale, Mr Macron played an all-or-nothing move by calling a general election. At the time of writing this article, the first round of the vote was approaching, with polls pointing to an RN victory, with the left-wing alliance coming second. Both these forces are euro-sceptic and, in good populistic fashion, promise to increase public spending while cutting taxes.

If predictions are right and the RN wins the election, France could be on a collision course with the financial markets, the European institutions and the other major nation in the block, which is Germany.

Running a budget deficit of 5.5 per cent and public debt-to-GDP ratio of 110 percent, France is already in breach of the EU’s fiscal discipline rules. The proposed measures from the poll favourites, RN, entail increasing public spending even more while tax revenues could end up falling. This is a scenario likely to trigger a fiscal crisis.

Financial markets have already sounded the alarm, anticipating what threatens to be a new crisis at the heart of Europe. In the aftermath of the election announcement, the euro devalued against other major currencies, European stocks fell and the interest rate on French public debt increased considerably.

The institutions in Brussels are also likely to react negatively to a fiscally delinquent French state. The problem here is that France is not Greece. In the last eurozone crisis, Greece was forced by the EU to meet fiscal targets by adopting painful austerity measures under threat of being kicked out of the euro. France being expelled from the euro club is unthinkable. Such a scenario would almost certainly dictate the end of the single currency and, possibly, of the European Union - at least in its current form.

Finally, a France governed by Eurosceptics could empower similar movements elsewhere, further destabilising the EU’s balance and ability to act as a bridge and aggregator for the continent. Not to mention the likelihood of increasing the friction between Paris and Berlin. Opening up this geopolitical window could reawaken tensions between two nations that have not always been the best of friends.

In any case, Emmanuel Macron has played his gambit. All that can be done now is to await the results of a two-round election whose impact is likely to be felt beyond the nation’s borders, hoping that France and the EU avoid, or find - as they have done in the past -  the way out of a crisis that would not be good for anybody interested in global peace and prosperity.