Europe on the Brink

Back in April, Emanuel Macron ominously said that Europe (referring to the European Union) 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 allowed, since its inception, almost eight decades of prosperity and peace to a part of the world that had 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 parliament poll in France, which gave a resounding victory to the nationalistic RN party, with the President’s own political force losing in a large scale, Mr. Macron played an all-or-nothing move, calling a general election. At the time of writing this article, the first round of the vote was ongoing, with polls pointing to a victory of the RN, with the left-wing alliance coming second. Both these forces have a euro-sceptic element 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 enter into 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 a public debt to GDP ratio above110%, 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. 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 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 in the continent, further destabilizing 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 haven’t always been the best of friends.

In any case, Emmanuel Macron played his gambit. All that can be done now is 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’ve done in the past, the way out of a crisis that wouldn’t be good for anybody interested in global peace and prosperity.

By Ricardo Evangelista