ECB president states collapse of government may affect economy

(MENAFN) European Central Bank President Christine Lagarde warned on Monday that political instability in France, including a potential government collapse following next week’s confidence vote, could have repercussions for the country’s economy.

Lagarde told Radio Classique, as reported by media outlets, “What I have observed over the past six years (in this position) is that political developments and the emergence of political risks have an obvious impact on the economy, on how financial markets assess country risk, and are therefore a matter of concern for us.”

Despite these concerns, Lagarde indicated that France is not at risk of needing International Monetary Fund (IMF) oversight at this time. “Countries turn to the IMF when they face a severe current account deficit and are unable to meet their obligations. That is not the case for France today,” she said.

French Prime Minister Francois Bayrou’s minority government is under threat after he scheduled a vote of no confidence for September 8. Bayrou is seeking parliamentary backing for a €44 billion ($51 billion) savings plan aimed at tackling France’s escalating public debt, currently at 113% of GDP. The country also faces one of the European Union’s largest budget deficits at 5.8%.

Bayrou warned lawmakers that France is “on the brink of over-indebtedness” and urged them to opt for “responsibility over chaos.” Opposition parties, ranging from far-left France Unbowed to the far-right National Rally, along with the Socialists, have pledged to reject the government.

Adding to the tension, French labor unions have called for a nationwide protest on September 10 under the slogan “Let’s block everything.”

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