French Reject Far-Right as Leftist Coalition Nabs Shock Election Victory

Like the UK, France has tilted left, producing much head-scratching and la confusion about how it’s all going to work. 

The Nouveau Front Populaire (NFP), a coalition of socialists and greens, won a shock upset in France’s parliamentary elections Sunday, though no bloc won an outright majority. Prime Minister Gabriel Attal, a member of President Emmanuel Macron’s centrist alliance — which came in second — offered to resign but was asked to stay on as caretaker. The far-right Rassemblement National (RN), which led polls, fell to third place. Markets need time to digest, and politicians need time to figure out what on earth the government will look like.

Quelle Surprise Surprise

France’s largest firms account for over 40% of the total assets of the benchmark Euro Stoxx 50 Index, giving the country significant influence over general investor sentiment. Markets have been stressed in recent weeks due to a possible victory by the RN, which promised protectionism and unfunded tax cuts in a year when the IMF already predicts France’s budget deficit will rise to 5.3% of GDP, up considerably from 3% in 2019.

France’s benchmark CAC 40 index has been the worst performer in Europe since the election was called on June 9. Sunday’s result, so unexpected that one TV network didn’t have time to fix the ratio of its election results graphic before displaying it on screen, introduces both relief and uncertainty:

• The NFP promised to spend €200 billion on key priorities over the next five years, but was unclear about where that money would come from. “For markets, basically the tail risks have been avoided and although the left has unaffordable spending plans, the left will need allies and will only be able to implement some of their promises,” Holger Schmieding, chief economist at Berenberg Bank, told Reuters.
• Former President François Hollande, a member of the Socialist Party who re-entered politics and won a seat in the election, has said a unity government could agree on compromise policies, which could also calm markets. But Jean-Luc Mélenchon, the leader of the leftist La France Insoumise party that joined the Socialists in the NFP bloc, insisted Sunday that their alliance should be invited to govern.

Collective “Phew”: While a hung parliament is not ideal, averting an RN government brought relative calm to markets Monday, with the CAC 40 up 0.3% and the Euro Stoxx 50 up 0.5% in the early afternoon.