- France’s political turmoil risks slowing progress on EU-wide green initiatives.
- Political instability could deter investment in green projects within France.
- Rising French bond yields might increase the cost of funding sustainable infrastructure.
- Potential EU fiscal changes, led by Germany, could either boost or constrain green spending.
- A US–EU trade bargain could favour renewable energy and LNG investments but remains uncertain.
The political gridlock in France, marked by Prime Minister Michel Barnier’s imminent ousting and the rising influence of hard-left and hard-right factions, poses challenges to the European green agenda. France’s historical role as a key player in EU climate policies may weaken, given its fiscal and political instability. Delays in budget approvals and the risk of prolonged governance issues could halt significant green initiatives, including renewable energy and carbon-reduction projects.
French bond yields have surged as investor confidence wanes, raising borrowing costs for green infrastructure projects. This dynamic may deter private and public investments needed for renewable energy transitions. The broader eurozone appears insulated for now, thanks to the ECB’s role as a lender of last resort. However, the contagion risk remains if France’s instability continues.
In Germany, upcoming elections could influence EU fiscal policy. A softening of the “debt brake” might lead to increased green investments across Europe, potentially counterbalancing setbacks in France. Cedric Gemehl of Gavekal Research notes that fiscal liberalisation could unlock growth opportunities, indirectly supporting sustainable industries.
Across the Atlantic, the potential return of Donald Trump raises questions about US-EU trade relations. A “grand bargain” involving LNG exports and increased EU defence spending could accelerate green transitions by reducing dependence on Russian energy. However, sceptics argue that Trump’s focus on Asia and the Middle East might sideline Europe, limiting progress on mutual green objectives.
For sustainable investors, the key takeaway is that while opportunities in Europe remain, France’s troubles highlight the importance of geographic diversification and tracking fiscal policies closely.