- From 6 to 9 June European Parliament elections were held; in France the far right won.
- President Macron dissolved the National Assembly and called legislative elections, a decision of great political weight.
- The uncertainty pushed up the French risk premium; with France as its main trading partner, Catalonia had to follow the matter closely.
From 6 to 9 June 2024, European Parliament elections were held. In France, the far-right victory led President Macron to dissolve the National Assembly and call legislative elections. It was a decision of great political weight, which opened a period of uncertainty in the euro area’s second-largest economy. Such a decision means accepting considerable political risk.
European elections usually have little immediate effect on the life of a company, but in this case the national result had direct political consequences in one of the main partners of Spain and of Catalonia. Markets noticed at once, and the episode helps in understanding how the politics of a neighbouring country reaches the finances and businesses of another. Catalonia, given its trading relationship with France, has particular reason to follow it.
A shock result
Macron’s reaction to the French result was immediate and risky. Dissolving the chamber means giving the voters their say earlier than planned and accepting the risk of a result different from the one hoped for, with everything that implies for the country’s governability. It is a power that belongs to the president, and exercising it always opens a period of campaigning and waiting.
For those watching from outside, what matters is not to give opinions on the parties but to recognise that a period of uncertainty was opening. Until the legislative elections were held and the make-up of the new chamber was known, it was unclear what economic policy the country would follow, and that doubt shows in market prices.
What the risk premium is
The risk premium is the difference between what a country pays to borrow and what a benchmark country pays. It is measured by comparing the yields on the two countries’ government bonds: the larger the difference, the dearer it is for the first to finance itself. When it rises, investors demand more to lend to that country. It is, in a way, a thermometer of the confidence a country inspires in those who lend it money.
That uncertainty pushed up the French risk premium. A rise of this kind does not by itself mean a crisis, but it is a sign that investors want more compensation for a risk they perceive as greater. And if the cost of borrowing rises for a state, it tends to rise for its banks and companies as well. That is why the risk premium is not a matter for public-debt specialists alone: it ends up influencing the cost of credit in the real economy.
Why it matters to Catalonia
For Catalonia, with France as its main trading partner, it was news to follow closely. A considerable share of the exports and purchases of Catalan companies has the neighbouring country as its origin or destination, so its political and economic stability directly affects activity in many sectors. Many Catalan companies, from industry to retail and transport, have a client or supplier of reference in France.
Companies with clients, suppliers or subsidiaries in France can review their exposure and their collection and payment schedules while the uncertainty lasts. The point is not to act with alarm but to know the contracts, the deadlines and the possible consequences of a delay or a change of terms, and to keep up regular communication with partners across the border. When uncertainty drags on, having that information in order makes it possible to decide with more peace of mind.
The stability of a close neighbour is also an asset of one’s own.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
