(Paris) French Minister of the Economy Bruno Le Maire on Tuesday deemed a “debt crisis” in France “possible” if the National Rally (RN) applied its program, at a time when financial markets are reacting nervously to the possibility of a far-right government coming to power.

The RN is favored in the polls for the early legislative elections of June 30 and July 7, after the surprise announcement of the dissolution of the National Assembly on Sunday.

Political developments pushed up the French ten-year borrowing rate, which continued to rise on Tuesday, so much so that the gap with the German rate at the same maturity reached a record since 2020.

The French ten-year borrowing rate rose to 3.32% during the day. Around 1:30 p.m. (Eastern time), it stood at 3.23% when, at the same time, its German equivalent, considered the safest in Europe, was at 2.62%.

The gap between this French rate and its German equivalent increased significantly during the session. However, this difference –– called “spread” – is an indicator of investor confidence in the long-term economic prospects of a country.

“Our creditors are worried, starting to move, to frown,” noted the Minister of Finance. “Since a victory for the RN has been possible, the cost of the French debt has exploded,” added Bruno Le Maire.

“If the RN implements its program, a debt crisis is possible in France,” he said during a meeting to launch the electoral campaign in Pacy-sur-Eure, in his former electoral stronghold of the ‘Eure.

“The RN’s economic program, which would significantly increase the state deficit, could trigger a public debt crisis if it were to be implemented,” estimates Sylvain Bersinger, from the Asterès cabinet, in a note, seeing a parallel with Liz Truss’s program in the United Kingdom, which had caused panic over the British debt.

The situation on the markets “illustrates the fears of a deterioration in France’s credit quality compared to Germany and this is linked to the costly nature of the possible measures from a budgetary point of view” in the event of a victory of the National Rally in France, explains Lionel Melka.

The nervousness of the markets comes in a context where the country recently saw its credit rating downgraded by one notch by the S rating agency

The 31st of May, S

For Moody’s, “French’s debt burden is the highest among similarly rated peers” and “France’s pace of deficit reduction will be slower than that of most of its European peers.”

On Tuesday, the Fitch agency in turn pointed out the “uncertainty” that arises from the dissolution.

“This is where we arrive in a vicious circle: the cost of the debt increases because we attribute to France a solvency risk”, which results in an increase in the interest rate that it must accept to pay to be able to borrow, he emphasizes.

While the bond market is the main financing lever for the State, borrowing more expensively means a higher financing cost for France, which can contribute to worsening its debt and further widening its deficit.

Furthermore, according to the most recent data from the Agence France-Trésor, in the fourth quarter of 2023, 53.2% of French debt was held by foreign investors “for whom the question of holding French debt arises” in the current uncertain political context, continues Mr. Buffault.