French election shock puts Macron in new quandary
The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Updates Context News following election results.
By Pierre Briancon
LONDON, July 8 (Reuters Breakingviews) -French voters have delivered a major plot twist. Instead of the expected triumph for the far-right Rassemblement National party in a national election runoff on Sunday, France’s left-wing New Popular Front (NFP) is set to be the domestic parliament’s biggest grouping. While French President Emmanuel Macron has recovered some capacity to negotiate his country’s chaotic political waters, the hung parliament that will now sit for at least a year still places him in a tough spot.
Investors in French assets won’t have much time to celebrate the fact that the scenario of an RN-dominated parliament that concerned them in the last two weeks has now receded. That’s because uncertainty has not gone away, and Macron is in a quandary. He can choose to appoint a prime minister from the NFP coalition of the extreme left, the greens and the socialists.
Yet that would be a minority government falling way short of the 289 seats needed to control a parliamentary majority. Macron could count on the deep divisions of the coalition to intensify after taking over. Far-left leader Jean-Luc Mélenchon’s immediate response to the results was to demand the implementation, as soon as this summer, of some of the key planks of the NFP’s platform. That includes, among others, price controls on energy and “essential items”, and a 14% hike in the minimum wage. The rest would be implemented at a later stage. In the meantime bond investors that had sent the premium they demand on France’s 10-year sovereign bonds over Germany’s down to 65 basis points – from highs of 80 on the eve of the election’s first round – will have more than a few reasons to fret.
Macron said on Sunday night that he would take his time before making a decision. That will allow him to gauge the actual strength of parliamentary groups, and use the left’s divisions to try and build the grand centrist coalition that has eluded him since his party lost its majority in parliament two years ago. But he would have to rally all the mainstream conservatives – in distant fourth place after Sunday – and about half the left’s MPs to give that eventual centrist alliance a passing chance to govern. It looks unlikely.
Chaos will in other words prevail, even of a different sort than would have resulted from a far-right majority. A serious reality check will come in the autumn when the new government has to present the 2025 budget. It will have to deal with the country’s fiscal deficit and a debt load worth 5% and 112% of GDP respectively, as well as the need to reduce these under the EU’s excessive deficit procedure, in a context of slow growth. The associated and required higher taxes and lower spending will then translate into broken promises, ideological flip-flops and probably an austerity plan. Who promised what to whom in terms of spending or taxes during the electoral campaign would then become seriously obsolete.
Follow @pierrebri on X
CONTEXT NEWS
The New Popular Front alliance of the far left, socialists and greens will be the dominant force of France’s new parliament elected on July 7, with 182 seats in the National Assembly.
A centrist alliance of parties supporting sitting President Emmanuel Macron came in second with 168 seats while far-right Rassemblement National, which had been expected to emerge as the election’s winner, will only hold 143 seats.
The three main blocs came far short of the 289 seats necessary for an absolute parliamentary majority.
Macron said on the night of July 7 that he would wait for the new parliament to “structure” itself before taking “the necessary decisions”.
Prime Minister Gabriel Attal, who led the electoral campaign for the centrist alliance, said he would resign on July 8 but was ready to go on at the head of a caretaker government.
Graphic: Spread between yields of French and German 10-year bonds https://reut.rs/3XSrdsW
Editing by George Hay and Oliver Taslic
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
