- The right-wing National Rally party used the opportunity to position itself as the party best placed to restore order in next year’s elections.
- These events led to a further rise in French borrowing costs, with the benchmark 10-year French government bond yield rising 0.15 percentage points on Monday, to 4.93%, flirting with new multi-decade highs.
The big picture: These events show the risk of a fatal spiral between fiscal policy, politics and markets – a risk that seems particularly worrying in France at present, but which could also apply to other advanced economies running large deficits, including the United States and Britain.
- Persistent deficits and rising interest rates force fiscal austerity, but austerity – especially if it involves cuts to pensions and other public benefits – is deeply unpopular.
- This toxic unpopularity can lead people to take to the streets and elect leaders who promise to maintain benefit levels and defy tax calculations.
- This generates a backlash in the bond market in the form of rising rates, making controlling deficits all the more urgent. Rinse and repeat.
The bottom line: The technocratic challenge of putting large, advanced democracies on a more sustainable fiscal footing is a difficult one. But managing politics seems downright impossible.
Gn bussni
