Markets wake up to left-wing French election risk

France's President Emmanuel Macron adjusts his tie after a meeting with NATO'S Secretary General at the Elysee Presidential Palace in Paris on June 24.President Emmanuel Macron’s shock decision to call parliamentary elections this month and Marine Le Pen’s far-right National Rally leading the polls have exacerbated concerns about France’s fiscal sustainability.

Some investors and analysts now say the risk that the NFP may perform better than expected in the second election round on July 7 due to tactical voting, and even form part of a new government, may be a bigger worry for financial markets. It says the spending would be fully offset by hikes on taxes ranging from inheritance to wealth and multinational corporations.

In contrast, the far-right RN’s financial pointman Jean-Philippe Tanguy told Reuters in an interview published on Monday that the party won’t “let the deficit run out of control” and would retain current plans to reduce it to 3% by 2027 to respect EU rules. It has also pledged an audit of public finances.

“In our view, NFP forming the government, whether outright or as a minority, would be most adverse for financial markets and result in spreads widening further,” they wrote, adding it would also be negative for the euro .

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