French Elections and Economic Reactions: The Commentary
In a surprise result, the second round of the French parliamentary elections saw the left-wing coalition New Popular Front (NFP) conquer the first place with 178 seats out of a total of 577. Macron’s coalition (Ensemble, center) came in second with 165 seats, while Le Pen’s coalition (Rassemblement National RN, far right) came third with 143 seats.The Republican Party (right) won 39 seatsi. Turnout was about 20 percentage points higher than in the 2022 runoff.
Markets had predicted a “hung” parliament with the Rassemblement National in the lead, not the Nouveau Front Populaire (NFP). Extreme outcomes have been avoided and, from a European perspective, this outcome is probably as close as we can get to maintaining the current situation, but the outlook remains, in our view, complex. It is not yet clear what government might emerge and how stable it would be.
The main conclusion is that the Parliament is deeply divided, which will introduce uncertainty about the political situation in the short term. Any government will be financially constrained by the current budget (5.5% deficit) he‘left alliance cannot govern without the support of centrist MPs. A step back on the pension reform would be a negative signal for the markets. With a “suspended” government led by the left, markets could see increased political uncertainty, with a light pressure on OAT-bund spread (which closed on Friday at 65bps with the 10-year OAT yielding 3.21%, up from 50bps before the snap election was announced and after having exceeded 80bps in the preceding weeks).
*Co-Head of Research Team EQUITA
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