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The Financial Risks of France’s Snap Election

Being too big to fail, France has long benefited from procedural gimmicks that allow it to run deficits well above what is allowed under the European Commission's fiscal rules. Since not even a far-right government would jeopardize this privileged status, a political stalemate is what should most worry investors.

LONDON – When former French President Valéry Giscard d’Estaing was finance minister in the 1960s, he famously described America’s status as the issuer of the world’s reserve currency as an “exorbitant privilege.” But his label applies equally well to his own country’s position in the European monetary union. Despite persistently widening budget deficits, France has long been able to borrow almost as cheaply as fiscally prudent Germany. The bond market even shrugged off S&P’s downgrade of French sovereign debt at the end of last month, implying that France was somehow immune from the usual credit discipline. Then politics intervened.