French Stocks Tumble to Worst Week in Two Years Over Election Fears

A growing realization that President Emmanuel Macron’s decision to hold snap elections in France may backfire sent the French stock market tumbling on Friday to its lowest level in two years, and prompted warnings from the French finance minister that the economy risks stumbling into a financial crisis.

Amid growing signs that Marine Le Pen’s far-right party may be ushered to the brink of power, France’s benchmark stock index, the CAC 40, slumped 2.7 percent. The losses capped a weeklong losing streak that sent shares down more than 6 percent, wiping out all the bourse’s gains since the start of the year.

Among the hardest hit stocks were France’s biggest banks, including BNP Paribas and Société Générale, which hold hefty amounts of French sovereign debt.

Equally worrisome, the risk premium that investors demand to hold French government bonds over Germany’s, a eurozone benchmark, rose to the highest since 2017, the biggest weekly jump since 2012, when the euro debt crisis was underway.

Bruno Le Maire, the finance minister, said on Friday that France “would face guaranteed economic collapse” if voters allowed parties on the extreme right or left to gain power. Mr. Le Maire, who is essentially campaigning these days for Mr. Macron and may lose his spot in the next government, cited what he said were free-spending populist economic platforms that could tip the already heavily indebted country further into debt.

If the far right wins a majority and establishes its populist economic program, with an estimated price tag of 100 billion euros, economists said France could face financial turmoil as Britain did two years ago. In 2022, Prime Minister Liz Truss ignited a financial market meltdown with outsize tax cuts and spending increases that risked raising the country’s deficit.

“We could face a situation similar to Liz Truss in Britain, as the risk of a similar public debt crisis in France is very real if the far right comes to power,” said Nicolas Bouzou, a founding director of Asterès, a Paris-based economic consultancy.

Political polls show growing odds that the National Rally, led by Ms. Le Pen and her firebrand protégé, Jordan Bardella, could hold greater sway than ever in the French government, despite Mr. Macron’s gamble that he could keep the far right at bay by holding new elections, a decision he made after his centrist party lost in European Parliament elections last weekend.

At the same time, France’s once fragmented leftist parties swiftly united on Friday in a grand coalition, the Popular Front, that could also grab seats from Mr. Macron’s party. Economists said that could throw Mr. Macron’s government into gridlock and raise the prospect of France’s economy stagnating.

“Everything was looking so nice for Europe until about a week ago,” said Holger Schmieding, chief economist at Berenberg Bank. “But now we face the risk of uncertainty.”

Mr. Macron’s call for new parliamentary elections set off a wild week in French politics, bewildering voters and creating chaos on the right and fostering a rare unity on the left. But it has also unleashed an increasingly uncertain financial situation in a country long been considered the most stalwart, next to Germany, in Europe.

In the space of just a few days, investors have rapidly driven up the interest rates they charge the French state to borrow. The yield on France’s 10-year government bonds rose sharply for a fifth day amid investor unease over the government’s ability to manage its finances should Mr. Macron lose his grip on power. At 3.12 percent, France’s borrowing costs are now closer to those of Portugal, a much smaller economy, rather than Germany’s, a stark turnaround.

Inside Mr. Macron’s entourage, officials scrambled on Friday to remind voters and investors of the economic benefits that have grown in the country since Mr. Macron took office seven years ago. These include the creation of two million jobs and an employment rate that is the highest in 40 years.

France was declared by Ernst & Young to be the most attractive country for investors in Europe for five consecutive years, starting in 2019, and under Mr. Macron’s watch, the country has won billions of euros in investment pledges from more than 300 foreign companies. Mr. Macron has also established some €50 billion in tax breaks for households, businesses and large companies.

But his rivals on the left and right have painted such developments as gifts to corporations and the rich, and they are pressing ahead with populist spending platforms that they say will give more to working class people who have struggled with inequality and a loss of purchasing power since Mr. Macron has been in office.

On Friday, Mr. Bardella, who is widely thought to become France’s next prime minister should the National Rally party sweep most parliamentary seats, said that his major focus would be to restore purchasing power to beleaguered households, along with its main plank of combating illegal immigration.

As his first act in office, he said, he would slash sales taxes on energy and food products to 5.5 percent from 20 percent and authorize companies to raise salaries 10 percent across the board, without forcing them to pay additional social security contributions.

Mr. Le Maire said on Friday that the program would blow a €24-billion hole in the French budget and called the far right’s platform “Marxist.” He said that investors would lose further confidence in a government that spent freely without finding offsetting savings.

He also cautioned that the economic program put together by the new Popular Front, the left-wing coalition, would “assure France’s exit from the European Union” by flagrantly flouting the bloc’s fiscal rules.

The Popular Front has pledged to increase France’s monthly minimum wage to 1,600 euros after tax, index all salaries to inflation and lower the retirement age to 60, among other things.

“It’s madness,” Mr. Le Maire said, adding that it would lead to “mass unemployment.”