Investors had already driven up the government’s borrowing costs. The difference between the interest rate that investors are charging on French debt versus that of Germany has increased to the biggest gap since the financial crisis, a sign that investors are worried about France’s ability to manage its finances. The danger is that France’s debt grows even larger, which could lead to a faster rise in interest payments.
Complicating the picture is the left-wing alliance, the New Popular Front, which on Sunday won the most seats in the lower house of Parliament. The party, a bloc that includes Communist, Green and Socialist lawmakers, is pushing a heavy “tax the rich and spread the wealth” agenda inspired by the far-left France Unbowed party, and has said it is ready to flout European Union fiscal rules if necessary to carry out its platform.
Indeed, unless the government raises taxes on businesses and the rich, the leftist bloc is likely to reject a national budget that honors France’s pledge to Brussels and debt ratings agencies to cut the deficit next year to 4.4 percent of gross domestic product, from 5.1 percent, Mujtaba Rahman, the managing Europe director for the Eurasia Group, wrote in an analysis. The group will also seek more spending on education and health care and possibly push to increase France’s minimum wage, he said.
