Christine Lagarde, President of the European Central Bank (ECB), underscored the connection between price stability and financial stability during a field visit near Paris. She emphasized the ECB’s ongoing attentiveness to the functioning of financial markets but noted that their current focus remains limited.

Investor concerns have heightened over the potential rise of the fiscally liberal National Rally party, led by Marine Le Pen. Their expansive financial pledges have caused apprehension in the financial community. The possibility of a National Rally-led government coexisting with President Emmanuel Macron’s administration raises fears of political gridlock and instability.

These concerns have had tangible effects on the financial markets. France’s benchmark CAC 40 stock index saw a decline of more than 6% over the past week, reaching a 15-month low. Additionally, the French 10-year bond yield increased by 0.2 percentage points. However, a semblance of stability returned on Monday as the CAC 40 rose by 1.4%, and the bond yield slightly eased to about 3.14% from a seven-month high of 3.24%.

In an attempt to calm the financial community, Marine Le Pen assured in a weekend interview with Le Figaro that her party would work constructively with President Macron. She emphasized her respect for institutions and denied any intention of causing institutional chaos, advocating instead for a cooperative cohabitation.

Le Pen promised an audit of public finances before implementing her party’s policies, which include lowering the retirement age to 60 and exempting under-30s from income tax. She indicated that the rollout of these measures would depend on fiscal manoeuvrability.

Opinion polls predict that the National Rally will secure about 35% of the vote in the upcoming elections on June 30, positioning Le Pen’s 28-year-old protégé, Jordan Bardella, to potentially become prime minister. Macron’s liberal coalition is expected to garner approximately 19% of the vote, trailing behind an alliance of leftist parties anticipated to receive 26%.

In her interview, Le Pen criticized her left-wing opponents, accusing them of threatening freedoms and advocating for the disarmament of the police and the overthrow of constitutional structures.

Barclays analysts noted that either a leftist or National Rally government could exacerbate France’s fiscal deficit, which already stands at 5.5% of GDP—well above the EU limit of 3%. France’s public debt-to-GDP ratio, currently over 110%, is also rising.

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