The EU’s economic war on Le Pen The market’s attack dogs are targeting National Rally

Back in 2022, the Institut Montaigne think tank estimated that Le Pen’s policies would increase France’s deficit, which currently stands at around 5.5% of GDP, by around €100 billion a year — hence the widespread accusations that a RN-led government would cause France’s deficit and debt to “spiral out of control” and potentially plunge the country into a fiscal crisis. Markets, we were told, are simply acting upon legitimate concerns about the sustainability of France’s deficit.

There are, however, several problems with this narrative. Most obviously, financial markets have no reason to be concerned about a higher deficit. Such concerns would only be justified if there were a real risk of France defaulting on its debt, but this is extremely unlikely: for the simple reason that the European Central Bank (ECB) would never allow it to happen, as it would mean the end of the euro.

Even more importantly, all this talk of “the markets” ignores the fact that the spread is ultimately determined by a central bank — in the EU’s case, the ECB — which always has the power to bring down interest rates by intervening in sovereign bond markets. We saw this clearly during the pandemic: despite France’s budget deficit ballooning to nearly 9% of GDP, bond yields on French government bonds actually fell below zero — as the ECB bought up all the new debt issuance. Indeed, even during the decade prior to the pandemic, France registered a relatively high deficit on average — well above the EU’s deficit-to-GDP limit of 3% — but very low bond yields, thanks to the ECB’s post-euro crisis quantitative easing (QE) programme.

Moreover, in 2022, despite the tapering of its pandemic emergency purchase programme, the ECB launched a new “anti-fragmentation tool”, the Transmission Protection Instrument, explicitly aimed at keeping spreads under control by allowing the central bank to purchase the government bonds of countries whose interest rates diverge excessively due to speculation. What is currently happening on the French bond market perfectly fits this scenario. The ECB could close the spread and put an end to the panic with the press of a button. In fact, one could argue this would be particularly justified: with all the talk of electoral interference, it’s hard to see why financial markets should be allowed to manipulate elections by spreading unwarranted panic.

Yet the ECB has so far refused to take any action. “What we are seeing is a repricing but it is not in the world of disorderly market dynamics right now,” said Philip Lane, chief economist of the ECB. His comments were backed by ECB president Christine Lagarde. “We’re continuing to be attentive, but it’s limited to that,” she disclosed, signalling that the bank sees no reason for activating its bond-purchasing instrument.

Taken at face value, such comments would have us believe that the ECB has taken a technical decision based on arcane economic parameters. In reality, however, the ECB’s decision not to intervene has nothing to do with economics — and everything to do with politics. By looking the other way, the ECB is using the “bond vigilantes” as proxies through which to scare voters — and send a message to Le Pen. Adam Tooze has likened this “agreement” between bond markets and the ECB to that of “state-sanctioned paramilitaries delivering a punishment beating whilst the police look[s] on”. But look beyond the smokescreen, and it becomes apparent that it’s not the markets interfering in the French elections; it’s the ECB.

This isn’t the first time the ECB has engaged in financial and monetary blackmail to coerce governments into complying with the EU’s political-economic agenda. Former ECB president Jean-Claude Trichet made no secret of the fact that he effectively engineered the European “sovereign debt crisis” of 2009-2012, by refusing to support bond markets in order to pressure governments into consolidating their budgets and implementing “structural reforms”. But over the years, the ECB has gone even further than simply turning a blind eye to market speculation. On several occasions, it has engaged in speculation itself, engineering sell-offs of the bonds of certain countries, or other comparable actions, in order to plunge hostile governments into fiscal crises. Most recently, Giorgia Meloni and Lagarde have clashed on various occasions, with the latter often using the spread to turn the heat up on the Italian government.

What is playing out today in France, then, is nothing new. And yet, there is something unprecedentedly brazen about the ECB’s latest attempt at electoral manipulation. What we are witnessing is effectively an unholy alliance between an increasingly discredited national elite and the supranational institutions of the EU against the common “populist” threat. The strategy should be clear by now: the EU creates an artificial financial panic and national elites then use that to scare voters away from the “wrong” candidate. As an MP from Macron’s party told Le Figaro: “First and foremost, we need to scare people… to show the consequences and financial risks of the [National Rally’s] proposed measures.”

Thus, Macron was quick to seize onto the turbulence in the markets to paint Le Pen as an economic menace and invite voters to rally against the National Rally. Meanwhile, his finance minister, Bruno Le Maire, has made the spectre of a financial disaster his main campaign argument. “I would like to know who is going to pay the bill of the Marxist programme of Marine Le Pen,” he said in an interview. (The news that Le Pen is a Marxist will, of course, come as a surprise to many on the French Left.)

As mentioned, the goal of this strategy is twofold: to scare voters and — should that fail — to send a message to the next government. While such fear-mongering appears to be failing on the first front — Le Pen continues to surge in the polls — it is definitely delivering on the second. Over the past week, the RN has backpedalled on many of its flagship economic proposals, in particular the idea of reducing the retirement age to 60 for some categories of workers.

Yesterday, the party’s young and charismatic president, Jordan Bardella, made clear that his party’s programme would be far from radical: the RN would focus on “realistic” measures to curb inflation, he said, primarily by cutting energy taxes. On Sunday, meanwhile, Jean-Phillipe Tanguy, the RN favourite to head France’s finance ministry, pledged that his party will not “let the deficit run out of control”, and that it will stick to the EU’s fiscal rules. The party has also shifted away from its longstanding Gaullist and anti-American stance, rowing back on its previous promise to pull out of Nato strategic military command.

The party’s “normalisation” has left many on the French Right feeling that Le Pen has gone too far in her bid for power. “Bardella has already sold out completely. It is not the patriotic economic model that I wanted,” said Bernard Monot, once the party’s chief economic strategist. “He’s changed the party’s position on fundamental positions. He’s pro-Zelensky and pro-Nato, just like Meloni. He is entirely compatible with liberal Atlanticism.”

But accusations of selling-out ultimately miss the point. This has little to do with Bardella, but instead is a consequence of the inevitable constraints that the euro system places on governments. The reality is that even if the RN manages to win an absolute majority, they will be forced to toe the EU-Nato line on economic and foreign policy if they want the ECB to play ball and keep the French bond market afloat. After all, all it takes to engineer a fiscal crisis is for Lagarde to look the other way as bond vigilantes do the dirty work.

Indeed, only last week, the EU hinted at what this might look like after it opened an “excessive deficit procedure” against France, along with six other member states. This means that the next government will be forced to rein in the deficit — or face disciplinary action. While it is true that France’s deficit exceeds the bloc’s 3% borrowing limit, this has been the case for a very long time — and yet the Commission has often let France off the hook in the past, provided pro-EU governments were in power.

But now that a Le Pen majority looms on the horizon, the EU’s economic police force is suddenly sounding the alarm. As with the ECB’s refusal to intervene in the French bond market, this is a wholly political decision aimed at pre-emptively tying the hands of a future RN-led government. As Politico put it, saying the quiet part out loud: “It’s one thing to let off a pro-EU, statesmanlike leader for the type of reckless spending that endangers the economic stability of the eurozone. It’s quite another if it’s carried out brazenly by a nationalist firebrand.”

The implication is all too clear: within the eurozone, “populists” such as Le Pen and Bardella may very well come to power — but radical change will always be beyond their reach.

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Thomas Fazi is an UnHerd columnist and translator. His latest book is The Covid Consensus, co-authored with Toby Green.

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