A Political Earthquake in France
For over a decade, Marine Le Pen has been on a mission to reshape the image of her Rassemblement National (RN) party, distancing it from its far-right origins and positioning it as a serious contender in French politics. This week, she made a bold move that has sent shockwaves through France’s political establishment. On December 3, 2024, Le Pen orchestrated the collapse of Michel Barnier’s minority government over his deficit-cutting budget, declaring once and for all that the RN is no longer a party to be ignored.
“This is the first time that the RN (formerly the ‘Front National’) has been in a position to influence public affairs in this way,” said Philippe Olivier, a senior RN figure and Le Pen’s brother-in-law. His statement reflects the party’s transformation from a fringe political movement to a central player in shaping French policy. Yet, this newfound power comes with significant risks—not just for Le Pen’s ambitions but also for the stability of the country.
President Emmanuel Macron now faces the unenviable task of appointing a new prime minister capable of steering a fractured parliament. The political deadlock has left France vulnerable, with markets poised to punish any signs of instability. Investor concerns are mounting, and for good reason. At the end of November, the yield on 10-year French government debt briefly surpassed 3.02%, overtaking Greece’s 3.01%. The symbolism is hard to ignore.
Le Pen’s gamble to topple Barnier’s government is not without peril. On one hand, it strengthens her image as a decisive leader ready to shape France’s future. On the other, it risks alienating white-collar and affluent voters—key constituencies she needs to win the presidency. For now, her move seems to resonate with her working-class base, who polls show overwhelmingly supported the censure motion.
Her justification? The RN acted to protect the French from a “toxic budget.” Critics, however, argue that her motivations are less noble. Le Pen has faced allegations of embezzling EU funds, with prosecutors recently seeking to bar her from holding public office. Many speculate that this bold political maneuver is partly an attempt to shift the narrative and trigger snap elections before any legal repercussions can take effect.
The roots of this turmoil stretch back to July, when Macron dissolved parliament and called snap elections—a move that inadvertently strengthened the RN. The party’s representation soared from eight seats in 2017 to 140 today, making it a swing bloc in the National Assembly. With Macron’s centrist alliance losing ground, the RN has found itself wielding newfound influence in a parliament divided into three irreconcilable factions.
This fragmentation has led to strange bedfellows, with political foes occasionally uniting to block or pass amendments. Macron’s centrists and Barnier’s conservatives have been plagued by internal divisions and absences, leaving debates increasingly dominated by the RN and the left.
On 3 December 2024, the RN joined forces with the leftist bloc to pass a censure motion—a collaboration that would have been unthinkable in the past. Despite last-minute concessions from Barnier, Le Pen rejected any compromise. The defiance has bolstered her standing among RN supporters, 86% of whom approved of the move, according to Toluna Harris Interactive polling. But critics accuse her of plunging the country into crisis for political gain.
Gabriel Attal, Macron’s former prime minister, dismissed the RN’s claims of being ready to govern. “Despite years of effort to convince the French you are responsible and ready, this moment confirms it was all hot air,” he said. Jean-Philippe Tanguy, a senior RN lawmaker, dismissed such criticisms as “project fear” and predicted minimal disruption with an emergency budget expected soon.
Still, the question remains: will this gamble pay off for Le Pen? Political scientist Luc Rouban suggests that while she may gain short-term advantages, prolonged dysfunction could damage her party’s long-term prospects.
Interest Rates and Mortgages
France’s political turmoil is not just a domestic issue; it has significant implications for the broader European economy. Investor confidence, already shaky, could deteriorate further if political gridlock persists. This mirrors the UK’s experience during the Liz Truss “mini-budget” fiasco, where government missteps wreaked havoc on financial markets.
In October 2022, Truss’s unfunded tax cuts sent UK bond yields soaring—the 10-year gilt yield surged from 2.8% to over 4.5% in weeks. Mortgage lenders panicked, withdrawing products overnight. A similar dynamic is now unfolding in France. Its 10-year bond yield has risen from 2.5% earlier this year to 3.2%, reflecting growing unease. If left-wing factions like La France Insoumise exploit the chaos to push through radical measures—like reducing the retirement age to 60—yields could spike even higher.
This instability doesn’t stop at France’s borders. Rising French yields could increase borrowing costs across the Eurozone, adding pressure to the European Central Bank’s already delicate balancing act between inflation control and growth.
The implications for British households are sobering. Just as the Truss mini-budget led to skyrocketing mortgage rates in the UK, prolonged instability in France could nudge the Bank of England to maintain higher rates for longer. With living costs already high, any additional volatility in mortgage rates would stretch household budgets further.
In 2023, the average two-year fixed mortgage rate peaked at over 6% before easing slightly. Renewed rate hikes—whether due to domestic policy or European instability—could push monthly payments higher for millions of households.
How Could This Impact British Households?
While France’s political drama may seem distant, its economic ripples can cross the Channel and affect British households in several ways:
- Currency Fluctuations and Travel Costs: Political instability often weakens a nation’s currency. If the euro depreciates significantly, British travelers to France might benefit from a more favorable exchange rate, making holidays in France cheaper. However, for exporters, this could mean stiffer competition for UK goods in Europe, potentially impacting British businesses and employment.
- Energy Prices: France is a key player in Europe’s energy market. Prolonged instability could disrupt energy policies, particularly if it affects nuclear energy production—a cornerstone of France’s power grid. Given the interconnected nature of European energy markets, any disruptions could exacerbate energy price volatility in the UK.
- Economic Interdependence: France is the UK’s third-largest trading partner. If political gridlock slows France’s economic growth, demand for British exports could decline, potentially hurting UK industries such as automotive, aerospace, and agriculture.
- Market Sentiment and Interest Rates: Turmoil in France could weigh on European market sentiment, influencing the Bank of England’s decisions on interest rates. For British households, this might translate to continued volatility in mortgage rates and borrowing costs, especially for those already grappling with elevated living expenses.
Lessons from Across the Channel
The RN’s rise and its role in the political chaos provide a cautionary tale about the risks of polarization. While Marine Le Pen’s calculated moves might bolster her party’s immediate credibility, they also underline the potential economic costs of political brinkmanship, which may have far-reaching consequences.
For British households, the lesson is clear: global politics are never truly “foreign.” Whether it’s a weaker euro impacting trade or higher borrowing costs stemming from broader European instability, the effects of political turmoil in France could reach your doorstep sooner than you think.
