The Paris Stock Exchange sent its own message to France’s political elites. Last week the CAC 40 large-cap index plunged 6% (the most in two years) and was at its lowest level in six months. The blow to French banks was particularly painful. As Reuters notes based on data from the British data provider LSEG, BNP Paribas, Credit Agricole and Societe Generale lost a total of 19 billion in one week, that is, compared to the “close” of the previous Friday.

Markets are clearly concerned that if the polls are confirmed and the far-right wins the July general election, hastily called by French President Emmanuel Macron after the European elections, then the new French government is likely to prioritize a protectionist and costly economic policy that will obey the “France first” logic. Possible result: the public debt will soar to even more unimaginable heights.

As Mathieu Plein, an analyst at the OFCE economic institute, notes to the AP agency, “borrowing rates for the French government are now starting to rise compared to their counterparts in Germany. In the past months this was not the case, the spreads were more or less stable, but now they are starting to rise. This is a new factor of investment risk, which did not exist before…”.

“Waiting attitude” by investors

In particular, until last Friday the French spread had increased by 78 basis points in relation to the German interest rate, which is considered a reference point for the Eurozone. Analysts at the Swiss bank UBS told Reuters that it is possible that this development is due to tactical maneuvers to maximize future returns, but in general “we estimate that investors will take a wait-and-see attitude until there is more clarity on political alliances and fiscal policies in case the famous ‘cohabitation’ (cohabitation) occurs in France, i.e. the forced political coexistence and symbiosis of a president and a prime minister from different political factions”.

Is the effect of political developments so important? The French economist Mathieu Plein points out that “the ability to repay the debt is an indication of the credibility of a government, its ability to meet the agreed deadlines, its stability. Radical political changes may raise doubts about the management of public finances, about our ability to repay the debt or even to remain in a European framework.

The fact is that, according to data from the British LSEG, at the moment for the French government the cost of borrowing through the issuance of a ten-year bond is higher than the corresponding cost for the Portuguese government! “Terror in Berlin and Brussels” is the title of the German economic review Handelsblatt about the developments in France. After all, the downgrading of the French economy by the rating agency S&P is recent.

ECB intervention is unlikely

But could the European Central Bank (ECB) intervene in this case, for example with purchases on the secondary bond market, as it happened during the euro crisis?

Speaking to Reuters on Sunday, five central bankers in Frankfurt, who did not want to be named, said there were “no plans to buy French bonds” and that it was “up to French policy to reassure investors”.