Marine Le Pen’s high-spending policy will be funded by debt, according to the president of the European Central Bank.
Christine Lagarde, who won the first round of France’s snap elections just days before, made a veiled warning to the leader National Rally on Tuesday.
Ms Lagarde stated: “There are certain guidelines within which the members of the EU must operate. They have to be able to manage their debts, ensure that their efforts will continue to be sustainable, and keep an eye on their deficit.”
Ms Lagarde spoke at the ECB annual conference in Sintra (Portugal) just weeks after the European Commission reprimanded France over its violation of fiscal rules.
The EU forced France into its excessive debt procedure, warning that the country’s borrowing was too high and must be reduced.
France’s debt, which is 110pc GDP, will continue to rise.
Since Emmanuel Macron called a quick election last month, French finances have come under increased scrutiny. The National Rally Party of Ms Le Pen has a good chance of gaining power. This would enable her to implement an economic program of low taxes and high expenditure.
Ms Lagarde, when asked about the rising French borrowing cost, said that the ECB was watching the markets closely.
She said, “I will not comment on the current political situation in any member states, especially those that are facing elections.
The ECB must do what it does. Our mandate is to maintain price stability.
We will continue to be attentive to this because it is part our job.
The cost of borrowing is increasing in France, but not everywhere.
The US borrowing cost recently increased in response to a Supreme Court ruling that Donald Trump could not be prosecuted over official actions. This decision increased his chances of winning in the November presidential election.
As traders reacted to the possibility that he would increase America’s debt, the impact of a second term for Trump was felt by all markets.
yields for US Treasuries rose on Tuesday due to predictions of increased borrowing. This has an impact on the interest rate the government pays its debt buyers. The US market is used by investors as a benchmark to determine interest rates in other countries.
Jerome Powell, Chairman of the US Federal Reserve urged politicians on how to control borrowing.
Powell, speaking alongside Ms Lagarde said: “The US runs a large deficit in a period when we have full employment.
The level of debt we are carrying is not unsustainable. Our current path is unsustainable. This is not a controversial issue. This is something I would have thought should be at the top of the list.
How can we return to a sustainable course? These kinds of deficits are not sustainable in good economic times.
In the long run, sooner is better than later.
S&P Global Ratings had warned that major economies would face a financial crisis if they did not reduce their borrowing.
The ratings agency warned that only a dramatic deterioration in borrowing conditions would persuade G7 government to implement a more resolute consolidation of budgets at this stage in their election cycles.
We estimate that the US, Italy, and France primary balances would need to improve by over 2pc cumulatively of GDP for their debt to stabilize; this is unlikely in the next three months.”
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