FRANKFURT (Reuters) – European Central Bank members have no plans to discuss emergency purchases of French bonds and still think it is up to French politicians to reassure investors worried about the prospect of a far-right government.
Five sources told Reuters.
French financial markets suffered a sharp sell-off last week as investors scaled back their positions ahead of early national elections that could lead to the far right gaining a majority and some analysts speculating about ECB intervention .
However, five ECB central bankers said they had not discussed triggering an emergency bond-buying scheme to support French debt, nor did they currently plan to do so.
The sources expressed varying levels of concern about the scale of the collapse in French government bonds, which have seen their risk premium over safer German bonds hit their highest since the 2011 euro zone debt crisis.
In general, however, they agreed that it is up to French politicians to convince investors that they want to pursue a sensible economic policy. Two sources even suggested that the ECB should not intervene before a new French government is formed and fiscal plans are announced.
An ECB spokesperson declined to comment.
The ECB’s Transmission Protection Instrument (TPI) allows it to buy unlimited quantities of securities from a country under market pressure, but only as long as it complies with parameters, including the European Union’s budget rules.
However, some governors said they were unnerved by the prospect of financial turmoil in France, which until recently was considered the euro zone’s second pillar of stability after Germany but now has its own fiscal problems.
French Finance Minister Bruno Le Maire has warned that the euro zone’s second-largest economy is at risk of a financial crisis if the far right wins elections on June 30 and July 7.
Marine Le Pen’s Eurosceptic Rassemblement National (RN) party, leading in the polls, calls for a cut in the retirement age, a reduction in energy prices, an increase in public spending and a protectionist “France first” economic policy (” France first of all”).
Some governors have compared the situation in France to that of Italy in the summer of 2022, when Giorgia Meloni’s centre-right coalition seemed poised to win the general election.
Since his victory, Meloni has toned down his confrontational approach to European institutions, and ECB governors hope Le Pen and her party will do the same.
Italy and France both have deficits higher than allowed under EU regulations, meaning they will be forced to tighten their purse strings through the European Union’s so-called “excessive deficit procedure” (EDP).
(Translated by Laura Contemori, editing by Gianluca Semeraro)
