EUROPEAN MARKETS FOCUS ON THE FORTHCOMING FRENCH ELECTIONS

19.06.2024 President Macron’s decision to call a snap Parliamentary election has seen initial support for the far Right and the far Left. Below we look at the implications for France and the markets.

Following the strong showing of the National Rally in the European elections President Macron has called snap Parliamentary elections.

The initial front runners are Marine Le Pen’s National Rally on around 35%. In second place is an alliance of hard left parties called New Popular Front. Whilst there are question marks about its stability, it is currently polling about 30%. It will field a single candidate in each seat thus unifying the left-wing vote. President Macron’s centrist Renaissance grouping has around 20% support.

French financial markets have been unnerved by the popularity of the extreme left and extreme right-wing groupings. Indeed, the French stock market fell 6% last week. Both groupings have large unfunded spending promises that, if enacted, would likely push the budget deficit up from 5% of GDP towards 10%.

An outright win for National Rally, where it gained a majority in Parliament, would lead to what is known as a ‘cohabitation’. In this scenario National Rally would control French domestic policy while President Macron would run foreign and defence policy. If the precedent of the far right Meloni government in Italy is anything to go by National Rally will be a lot less radical in government than in opposition. Many of the unfunded spending pledges, under pressure from the markets, are likely to watered down or abandoned.

The most likely outcome, however, is a hung Parliament where no party has overall control. Given the wide range of political views and combustible personalities getting legislation passed would be challenging. It might well lead to another Parliamentary election next year.

After the initial shock markets could potentially live with a National Rally majority government. As argued above it would likely be a lot more fiscally conservative than its current rhetoric suggests. More damaging would be the scenario of a hung parliament. Given the extreme polarisation of views forming a coalition, or even just passing legislation, could be very challenging.  

For information only. Investors should seek professional advice for their own circumstances before making an investment.

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This post was written by Robin