President Emmanuel Macron's surprise announcement of the dissolution of the Assemblée Nationale was a financial opportunity for Matthew Russell: The bond manager at M&G, an asset management group, said he bought French sovereign debt in the days that followed. A London-based trader little versed in the details of French politics, he made a simple calculation: French interest rates had by then risen by around 0.3 points, to 3.3%, offering a better yield, while the risk still seemed very reduced to him. "The European Union won't let France default," he believes, betting on the fact that the European Central Bank (ECB) will always be ready to intervene in case of panic.

This anecdote serves as a reminder of a fundamental truth: There are (almost) always buyers on the financial markets. But not at any price. With this in mind, the prospect of a far-right Rassemblement National government or an unclear majority is not about to cause France to default or go bankrupt. On the contrary, it is likely to cost the country a great deal more. Since the dissolution, the difference between French and German rates (the "spread") has already risen from 0.5% to 0.75%, even reaching 0.8% on Monday, July 1, after the results of the first round of the legislative elections were announced.

"The danger is that of a long process of crumbling public finances," explained Gilles Moëc, chief economist at Axa Group. In this light, two recent shocks in Europe are worth remembering: the financial panic caused by Liz Truss in the United Kingdom in October 2022 and the long Italian skid of 2018-2019 when the 5 Star Movement was in power.

Liz Truss's faux pas in the UK

On September 23, 2022, Truss's government, the UK's then new prime minister, introduced the biggest tax cuts since 1972. How was this gift supposed to be financed? By growth, which it claimed would soar to 2.5% per year. On the financial markets, no one was buying it. In one week, interest rates on British bonds soared from 3.1% to 4.5%. It took the intervention of the Bank of England, the withdrawal of the bulk of the measures and Truss's humiliating resignation after 44 days in office to put an end to the turmoil.

"Yet the tax giveaway wasn't that big [it was €50 billion, to which had to be added help with energy bills, amounting to €85 billion in additional borrowing, the equivalent of 2.3% of GDP]," recalled David Owen, a British economist and founder of the Saltmarsh Economics adviser firm. Truss's real mistake, he believes, was the brutal way in which she announced her budget.

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