After sixteen months of political crisis, the burdens on France are increasing, complicating its already fragile financial situation. Investment rates and market confidence have declined, interest rates have risen, alongside high election costs.

The French economy continues to suffer the repercussions of President Emmanuel Macron’s decision to dissolve the National Assembly in June 2024, further exacerbated by the resignation of Prime Minister Sébastien Lecornu on Monday.

The National Institute of Statistics and Economic Studies (INSEE) expects growth in France to reach only 0.8% this year, affected by companies and households refraining from investment, increased savings rates, and the economic slowdown’s impact on employment.

According to the French Observatory of Economic Conditions (OFCE), which assessed the impact of the prevailing uncertainty, the political crisis will cost the equivalent of 0.5 percentage points of growth, or 15 billion euros, by the end of 2025.

In an interview with AFP, OFCE economist Eric Heyer said, “In a state of uncertainty, companies freeze everything, whether investment or hiring, and household savings increase,” harming growth.

The economist cautions that this estimate should be treated carefully due to the difficulty of accurately assessing a multifaceted crisis amid a bleak global situation.

At the end of January, the Ministry of Economy indicated that the cost of the vote of no confidence against Michel Barnier’s government and the “instability it generated” was estimated at 12 billion euros, a figure rejected by the opposition at the time.

Experts from Allianz Trade estimated the cost of dissolving the National Assembly alone at 4 billion euros, split between a 2.9 billion euro loss in tax revenues due to a 0.2 percentage point growth decline and about 1 billion euros in increased interest expenses on French debt.

Financial markets have been severely affected by the political crisis, both in stock prices and interest rates.

The main channel for the crisis’s spread is the rise in French 10-year borrowing rates, reflected in the interest rate spread with Germany. This spread increased by about 0.3 to 0.4 points compared to the period before the National Assembly was dissolved.

While rising French interest rates are not good news for public finances, the country’s borrowing in recent years at historically low rates mitigates the impact.

Eric Dour, director of economic studies at the EOSOGE management school, said, “The situation is not dramatic, this is not Greece, but it will complicate budget efforts.”

Far from the risk of a severe financial crisis, the greater concern lies in the gradual and chronic deterioration of public finances, with public debt reaching a record over 3.4 trillion euros, alongside the risk of credit rating downgrades by agencies after Fitch’s September decision attributed to political instability, which may increase debt costs.

On the stock market, the CAC 40 index, which includes the country’s 40 largest companies, has risen about 8% since the start of the year, compared to increases ranging from 15% to 25% in major European financial centers.

Eric Heyer said, “This means a decline in companies’ investment capacity,” weakening their position in international competition.

Organizing the electoral process, from holding elections to reimbursing candidates’ expenses and increasing financial allowances for former ministers, entails high costs, especially with frequent elections, although these expenses remain relatively low compared to some other costs.

Charles de Courson, former general rapporteur for the budget, stated in a parliamentary report dated November 2024 that the cost of organizing legislative elections after dissolving the National Assembly was about 200 million euros.

When Sébastien Lecornu resigned on Monday, many social media messages criticized the privileges granted to five new deputies who joined the government but held their positions for only a few hours, implying they might receive allowances for three months.

However, an article in the election law excludes this possibility. Former deputies will continue to receive their parliamentary allowances but not the ministerial bonus.