In 2016, Brussels granted France flexibility in adhering to EU budget rules, with then-European Commission President Jean-Claude Juncker explaining it succinctly as 'Because it’s France.'
This tolerance remained through the sovereign debt crisis, which nearly led to the euro's collapse and compelled countries like Greece and Portugal to implement stringent austerity measures.
However, any indulgence toward French exceptionalism may cease if early elections in France result in a Eurosceptic, far-right government coming to power. Such an outcome could strain relations with other European capitals and jeopardize the core stability of the euro area.
Marine Le Pen's far-right National Rally (RN) claims that it will not impact the French budget, yet uncertainties persist regarding how to fund ambitious spending initiatives under revised euro area fiscal regulations and whether the European Central Bank could intervene should financial markets pose challenges to France.
Holger Schmieding, an economist at Berenberg, expressed concerns that if a country could disregard the rules and receive assistance from the central bank, it would raise significant doubts about the future stability of the euro and its cohesion.
These concerns are not currently on the EU summit agenda, but they are causing unease among President Emmanuel Macron's colleagues, particularly in light of the RN party's lead in two rounds of voting starting on June 30.
In Germany, senior government sources have expressed apprehension over Macron's unexpected decision to call elections that could result in an RN-led government. One official likened it to the Brexit referendum organized by former British Prime Minister David Cameron.
According to the Co-Founder and CEO of Policy Sonar, a Rome-based consultancy, in Italy, where the debt burden exceeds that of France, there are mixed feelings of schadenfreude and apprehension regarding the potential repercussions of the French crisis spreading beyond the Alps.
Otmar Issing, the ECB's Inaugural Chief Economist and one of the original architects of the euro likened the debts of Italy and France to a "sword of Damocles" hanging over the monetary union, suggesting that unresolved issues could lead to dire consequences.
Opinion polls indicate that the RN could emerge as the largest party, potentially creating a challenging coexistence with Macron until the 2027 presidential election.
France's financial stability is currently in jeopardy, with the International Monetary Fund questioning how the country plans to reduce its budget deficit, estimated at approximately 5.1% for this year. Aside from that, its credit rating has already been downgraded by two agencies.
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