The EU liberals are ready for a financial struggle with Le Pen's party

A quiet panic began in Europe. If Marine Le Pen (photo) party wins early French parliamentary elections and forms a new government, experts in the European Union expect a serious blow to European finances. They understand that Macron's liberal policies will be replaced by Le Pen's new policies, and this will greatly undermine European finances. POLITICO covers the topic.

The bid by Marine Le Pen’s National Rally to form the next French government challenges the European Commission to punish a country it has always let off the hook.

France has always been too big, too powerful and ― most crucially of all ― too much a part of the cozy EU establishment to be fined for its financial sins.

But the party might be over.

As the European Commission prepares on Wednesday to name and shame the latest batch of governments which have flouted budget rules, France's easy ride no longer looks sustainable. The EU's top brass is under pressure from across the bloc to finally crack down on the budget bad boy and set the country on a course that could ultimately see it penalized.

The prospect of Marine Le Pen's far-right National Rally (RN) forming a government in Paris after President Emmanuel Macron called a snap election has changed everything. It has sent a shudder through the EU's bureaucracy in Brussels ― and in Frankfurt, the seat of the European Central Bank ― officials have told POLITICO.

After all, 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 who doesn't think the rules are worth the paper they're written on in the first place.

In the old days, the European elite could afford to be candid about how much slack it allowed France. It was Jean-Claude Juncker, the previous Commission president, who eight years ago explained why Europe's budget cops had turned a blind eye to France’s poor public finances. “Parce que c’est la France,” he said. Simple as that. (The fact that Juncker's economy commissioner was French might have helped too.)

His government has already pledged budget cuts worth about €20 billion to bring down a budget deficit ― the difference between annual spending and income ― which reached 5.5 percent of GDP last year. France’s public debt is forecast to climb to 114 percent of GDP in 2025.

Those are eye-watering figures: EU rules force countries to have, or at least work toward, annual deficits of 3 percent and debt at 60 percent.

France is among a dozen countries that will receive a red flag for breaching the bloc’s deficit threshold. This will put them into what's called an "excessive deficit procedure," which requires governments to take action to rein in their spending ― and to set out in detail how they're going to do it. It's a typically drawn-out EU process that can take years but ultimately they could be fined.

The party has campaigned on a program that mixes tax cuts and protectionism and ― although prospective prime minister, 28-year-old Jordan Bardella, appeared to row back on it in recent days ― undoing Macron’s pension reforms and lowering the retirement age to 60 for some workers. That would detonate a bomb under the country's public purse, as the average age of the population increases.

“If RN implements its fiscal policies, then there's no chance it can follow the [EU] fiscal rules and if it doesn't follow the fiscal rules then the Commission will have to follow the [excessive deficit] procedure," said Nils Redeker, deputy director of the Jacques Delors Institute, a Paris-based think tank. If the party followed through with its plans “the economic damage could be quite big."

Losing trust

But the markets are already jittery. The French stock market suffered its worst week in more than two years. In the days before Macron's election announcement a credit-rating agency downgraded the country over the cost of servicing its debt ― a sign of failing confidence.

And it comes at a time when the Brussels bureaucracy is at its most vulnerable. Following the European Parliament election, the EU must decide whether Ursula von der Leyen remains president of the Commission and then she, or whoever replaces her, must name new commissioners.

The whole point of the rules is to avoid the contagion effects of massive debt that almost toppled Greece at the start of the 2010s and was in danger of ripping apart the whole currency area.

The crunch point won't come this week. That's more likely in the fall when countries have to present roadmaps for how they're going to reduce their debts and deficits, by which time France will have a new government.

In the days of Juncker's infamous quote, the deal-making that resulted in France escaping a fine was less than transparent. Officials say there is no longer appetite for such backroom negotiation.

This is even more the case because northern governments negotiated strict deficit and debt safeguards into the reforms to ensure countries are kept in check and continue to be ― at least theoretically ― punished with fines if they go astray.

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