Far-Right and Far-Left Risks Threaten Eurozone Stability: Will Political Fringes Sabotage the Monetary Union?

The monetary union of the eurozone is incomplete, with a common monetary policy but no common fiscal policy. In order to keep the Eurozone functioning, cooperation between its members is essential for stability. However, as political fringes gain power, the willingness to cooperate may diminish – and there is no way that the ECB will come to the aid of a very right-wing government.

The upcoming French parliamentary elections could have a significant impact on the Eurozone. President Emmanuel Macron has called for early elections after his party’s defeat in European elections and the victory of the right-wing Rassemblement national. The possible outcome could put immense pressure on the already fragile monetary union, with a new prime minister from either extreme left or right political camp.

The European Central Bank (ECB) stepped in to calm the debt crisis in 2012 by implementing a cleaner policy due to lack of political will among member states. Parties on both ends of the spectrum are generally more opposed to fiscal policy guidelines agreed in Maastricht Treaty than their counterparts in center. They prefer a Europe of nation-states over an increasingly closely knit EU with central government in Brussels. The strengthening of far-right and far-left parties in France, Italy, and other Eurozone countries coincides with high national debt levels and noncompliance with Maastricht criteria by many members.

Political promises made by extremist parties such as reversing Macron’s pension reform have raised financial markets’ concerns about their impact on Eurozone stability. Financial markets closely monitor this development, which has led to rising risk premiums for French government bonds recently. There are three safety nets that ensure Eurozone cohesion: rescue packages and ECB purchasing programs ultimately rely on political support from economically solid member states.