French election: Markets stabilise after shock results lead to stalemate

In 1962 president Charles De Gaulle expressed his frustration at the difficulties facing anyone governing France: “How can anyone govern a country with 246 varieties of cheese,” he lamented.

Today’s political leaders may be thinking along similar lines after the results from the second round of voting for the French parliamentary elections

The left-wing alliance, the New Popular Front, won 182 seats in the second round of voting while Emmanuel Macron’s Ensemble won 163 seats. Marine Le Pen’s National Rally won 143 seats.

289 seats are needed for a majority, meaning no party is close to governing on their own.

Generally the Prime Minister comes from the largest party in parliament, which means the left-wing NFP should be given first dibs on forming a government.

However, its unclear who should be the leader of the government.

The NFP is an assortment of left-wing parties which formed just three weeks prior to the election. It includes a host of parties, including the Greens, the more moderate Socialists and Jean-Luc Melenchon’s France Unbowed.

Melenchon, the most prominent figure in the NFP, declared that the NFP alliance would not form a coalition with other parties. “The NFP will implement its program,” he told supporters on Sunday.

This spooked markets at first, with French bonds selling off after the results.

The NFP has plans to increase annual public spending by 150bn Euros, including reversing Macron’s detested pension reforms and increasing public sector wages by 10 per cent.

However, the NFP will not be able to govern if a majority in Parliament opposes its programme, so the most likely result is deadlock for weeks, if not months.

Markets seem less concerned by the prospect of a stalemate.

Having opened lower, the CAC 40 was trading 0.51 per cent higher in mid-morning while French bonds also recovered.

Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics said “a lot of negotiation lies ahead before we see the new government, let alone what it can and can’t do.”

Economists at Nomura thought the most likely outcome would be a centrist premier palatable to the mainstream parties.

“This would result in the continuation of the political stalemate we have seen since Macron’s policy party failed to obtain a majority in the 2022 legislative elections,” they said.

A stalemate should ease immediate concerns over a spending binge, which could raise questions about the sustainability of French national debt. However, a policy vacuum is unlikely to help fix the many problems facing the French economy.