The great defeat of the faction of the French president, Emmanuel Macronfrom her party Marine Le Pen in last Sunday’s European elections and the risk of him coming second in early parliamentary elections sent shockwaves through French assets and especially government bonds.

The yield on France’s 10-year bond rose 20 basis points on the week, reaching as high as 3.3% on Tuesday, and the spread with the German counterpart jumped to 70 basis points, the highest level since 2017.

According to the agency Bloombergthe reason is investor concern that if Le Pen secures a parliamentary majority in two-round elections, efforts at fiscal adjustment would be reversed as she wants to undo Macron’s pension reform by raising the retirement age and to reduce sales tax.

Although Le Pen has moved away from her past extreme positions, such as France’s exit from the euro, she continues to raise fears that her policies will exacerbate the difficult fiscal position of the eurozone’s second-largest economy. With the 2023 budget deficit set at 5.5%, almost double the 3% ceiling allowed under the Stability and Growth Pact, the European Commission has announced it will launch the excessive deficit procedure against country.

More worryingly, it is not expected to reduce its deficit below 3% in the foreseeable future, with the result that its already high public debt is expected to increase further.

In its recent spring forecast, the Commission estimated the deficit to be 5.3% of GDP this year and 5% in 2025, with public debt rising from 110.6% of GDP last year to 113.8% in 2025. But even the International Monetary Fund is not at all optimistic as it predicts that even in 2029 the French deficit will be higher than the allowed limit of 3% – at 3.9% – and its debt will reach 115%.

Ominous fiscal forecasts are what led the credit rating agency last month S&P to downgrade France’s credit rating to AA- from AA.

Although the National Alarm has not yet presented a detailed pre-election program, the institute Montaigne, who is close to Macron, estimated that Le Pen’s program for the 2022 presidential election would cost 120 billion. euros a year and would increase the country’s deficit by 100 billion. euros, also on an annual basis.

President Macron said on Wednesday that if Le Pen won the election, he would impoverish savers and scare off investors by canceling his reforms. The Minister of Finance, Bruno Lemairein fact, warned that France would sink into a debt crisis similar to that which led Britain to Liz Truss, when she took over as prime minister in September 2022 and announced a series of measures that led to a fiscal derailment, causing the country’s borrowing costs to rise dramatically within a short time and her resignation just a month and a half later. “A debt crisis is possible in France, a Liz Truss scenario is possible,” Lemaire said.