French far-right Rassemblement National party leader Marine Le Pen, right, flanked by Steeve Briois, mayor of Henin Beaumont, meets local residents during a campaign visit at a market in Henin-Beamont, North of France on June 14.As the far right and leftist parties gain momentum ahead of France’s surprise parliamentary election, pressuring President Emmanuel Macron’s centrist administration, investors are starting to contemplate the risk of a budget crisis at the heart of the euro area.
A newly formed leftist alliance meanwhile said on Friday it wanted to lower the retirement age and tie salaries to inflation, adding to expectations for higher spending under a new government. An opinion poll on Wednesday showed the leftist parties coming second behind the RN. Finance Minister Bruno Le Maire, urging voters to back Macron’s centrist candidates, warned on Friday of the risk of a financial crisis if either the far right or the left wins the election.
“We’ve already had a stress test in the UK with the mini budget and we had a bit last summer in the U.S. when Treasury yields rose sharply after the Treasury refunding announcement,” said Guillermo Felices, global investment strategist at PGIM Fixed Income.The Institut Montaigne think tank has looked at the RN’s programme for the 2022 parliamentary election, saying it would cost more than 100 billion euros -- suggesting a 3.
Italy last year posted the highest budget deficit-to-GDP ratio in the European Union, at 7.4% of output. Together with France it is expected to face a European Union excessive deficit procedure requiring it to reduce its structural deficit.