Why the France budget fallout could be worse than Trump’s tariffs
| Updated:
Donald Trump’s promise of tariffs on imports from China, Mexico and Canada has made headlines, but tensions in France could spell a huge economic downturn much closer to home.
Listen to this article
Read time: 4 mins
In brief…
- Unrest is brewing in France due to backlash to a recent budget which, if voted against, could trigger “financial uncertainty on an epic scale” in Europe.
- Marine Le Pen, leader of France's hard-right party National Rally, is leading the revolt, and has the backing of the far-left parties on this issue.
- The News Agents say this could be a moment to look back on if there is an economic downturn over the next 12 months.
What’s the story?
There’s a lot of conversation at the moment about the tariffs Donald Trump is planning to impose, from day one of his presidency, on China, Mexico and Canada.
But there could be something even worse looming from our own continent, and it’s the argument over the budget set by Michel Barnier’s government in France, which is disliked by the far-left and far-right groups in the French parliament equally.
“You might think, well, that's a local French story: It's not,” says Jon Sopel.
“If this happens, it could trigger financial uncertainty in the rest of Europe on an epic scale.”
Due to a huge deficit in France, where it spends more than it takes in taxes, the recent budget saw the country hit with high electricity bills, tax rises and cuts to public services.
A vote on the budget is due in the French parliament before the end of November.
Marine Le Pen’s right-wing National Rally (RN) has more seats than any other single party in the French parliament, and was only beaten in this summer’s snap election by a coalition of left-wing parties.
There are fears she may use her influence to veto the budget, resulting in widespread financial turbulence across Europe.
“If that happens, the European markets, including the European Central Bank, who have warned about this, are talking about the potential of a sovereign debt crisis enveloping the EU's second biggest economy," says Lewis Goodall.
Is Europe facing a new economic crisis?
Why might this happen?
Barnier is currently trying to get 60 billion euros-worth of spending cuts passed – at a time the French parliament "could not be more fractious", according to Lewis.
"The old centre left party and centre right parties are gone. The centre of gravity is now on the hard right," he says.
And that hard right is led by Le Pen.
"On this question of the budget, she finds herself aligned with the hard left parties," says Emily Maitlis.
"On economic issues, they actually share ground with France's hard left, and so between them, they can make life very uncomfortable for Barnier.
"They can topple him, and it's over questions that actually are very understandable to the electorate."
And, with Le Pen going on trial in January over accusations of embezzlement of four million euros from the European Parliament to her party, she may want to leave one final mark on international politics in case the end of her career is near.
"If she's convicted, she would not be allowed to stand in public office, and so, in a way, this is like the last chance for her," Emily adds.
"She doesn't care if she goes down, she just wants to take the whole building with her."
There has also been a warning from the European Central Bank about the need to boost growth in Europe, as well as concerns that should France go into decline due to the budget vote, allies such as Germany may not be willing to bail it out.
"They will consider the French to have got themselves into this mess," says Lewis.
"France has spent all this money Germany hasn't, so it is basically tugging at the bonds of the European project in a way we’ve not seen before, at the same time as we have big economic problems coming down the track."
What Donald Trump's tariff plans mean for America
How could Trump's tariffs affect the UK and EU?
The UK isn't named in the countries facing tariffs from Trump, but that doesn't mean the government isn't putting measures in place in case it eventually is.
"A trade war with America is the last thing that the European Union needs right now, and Donald Trump is gearing up for the fight," says Jon.
Trump's tariffs on China are due to the import of ingredients for the drug fentanyl, and on Mexico and Canada for the number of illegal immigrants that have passed through their borders.
"With the sort of tariffs that we're talking about, it is not hard to see the profound economic implications which cascade through the entire North American economy, which then has an impact on the rest of the world," says Lewis.
"So if, in a year's time, we are talking about a big economic downturn, it will not be hard to look back and see these were the dots which were about to be connected."
Listen in full on The News Agents
