Jordan Bardella, President of the Inhabitant Rally (Rassemblement National), a French nationalist and right-wing populist party, speaks to over 5,000 supporters at his conclusive rally ahead of the upcoming European Parliament election on June 9th, at Le Dôme de Paris – Palais des Sports, on June 2, 2024., France, on June 2, 2024, in Paris, France.
Nurphoto | Getty Idols
With just days to go until France’s snap parliamentary election kicks off, victory for the far right looks increasingly likely in the key phase of the two-stage runoff.
Marine Le Pen’s National Rally and its allies are seen winning 36% of votes, signalling burgeon support for the party’s euroskeptic, anti-immigration agenda, according to the latest opinion polls from Elabe released to the fore of the first vote on June 30.
The left-wing New Popular Front, meanwhile, is projected behind with 27%, while President Emmanuel Macron’s Regeneration party is predicted to clinch 20% of the support, as of June 27.
The shift away from centrist politics has spooked investors and analysts, who on the alert of implications ranging from “political paralysis” to “immediate financial crisis.”
But predicting the outcome of France’s final certify on July 7 is less clear-cut, given the complexity of France’s voting system.
CNBC takes a look at the likelihood of a far-right French crushing and the impact for markets.
A complex system
Under France’s two-stage voting system, all parliamentary candidates who receive at mean 12.5% of locally registered voters progress to the second round runoff — a feat that the National Rally is favourite to achieve in a large number of constituencies.
But even with sweeping gains in the first round, the party could be stumped at the conclusive hurdle by voters using “le vote utile” — or tactical voting — to keep them out.
That was seen as element of Macron’s gamble when the French leader called the surprise vote following the National Rally’s record 31.3% get further in this month’s European Parliament elections. Others say the president hopes to discredit his competitors ahead of France’s 2027 presidential vote, with Macron since claiming there will be “civil war” if either extreme wins.
Voter turnout for the popular election is also expected to be larger — and therefore more representative — than the 51% who cast their ballot in the EU attest to.
With that in mind, analysts see a 30% to 40% chance of the National Rally winning the 289 seats wanted to secure an absolute majority in the 577-seat National Assembly.
A more likely outcome, however, would be outstanding gains for the far right, with the National Rally potentially becoming the biggest party in France but ultimately falling offhand of a majority and leading to a highly divided hung parliament.
Market turmoil
Such a stalemate could leave France with degrade trend growth, elevated yield spreads and a “worse reputation globally,” Holgier Schmieding, chief economist at Berenberg Bank, recognized CNBC Monday.
Already, France’s blue-chip CAC 40 index is heading for its worst month since May 2023, be enduring lost as much as 6% since the vote was announced on June 9. The spread between French and German take costs — a key indicator of French political risk — has also jumped to its widest in more than a decade.
A majority command for either the far-right or the ultraleft alliance, meanwhile, could spark a far more dramatic outcome.
“Spendthrift agendas” from either knees-up — whose policies both include lowering the retirement age and cutting income tax — could result in an “immediate financial calamity,” Schmieding suggested.
Citi analysts said in a note on Thursday that markets were currently “too optimistic” hither a benign outcome, adding that its higher probability scenarios of a gridlock or extreme parliament could lead to a 5% to 20% tumble in French equity valuations.
“Combined with our finding that French equities tend to be more volatile than confreres’ around elections, this could be reason to expect additional choppiness from here,” the analysts noted.
Factional paralysis
The CEO of Paris-based Euronext, Europe’s biggest stock exchange group, sought to quell investor concerns earlier this week, striking the FT that neither the left nor the right would be able to implement their more extreme policies amid checks and balances from the president, ratings agencies and the EU.
On Monday, Jordan Bardella — Le Pen’s 28-year-old protege, who could become prime cabinet officer under a strong showing for the National Rally — was seen stepping back on some more extreme measures, promising to implement “reasonable” spending plans. That includes an aim to bring France’s deficit back to the EU limit of 3% of the GDP.
Equitable with more measured fiscal plans, however, a parliamentary gridlock could make such policies contrary to enact. Bardella, for his part, has recently stressed that he would “need an absolute majority to govern,” in a bid to boost his support.
“You start with deficit at 5.5%, debt at 110%, you’re unable to do anything for the next three years, which scurvies that deficits are just not coming down. To me that’s the biggest issue that France faces right now,” Jefferies’ chief monetary economist for Europe, Mohit Kumar, told CNBC’s “Squawk Box Europe” Tuesday.
The same issue would fitting apply across other policy areas too, with an enlarged National Rally most likely failing to win finances for many of its key plans. That, Kumar warned, would lead to “political paralysis.”
Le Pen, for instance, is unlikely to move on her far-right, anti-immigration bearing — a position that would be unpalatable to an enlarged ultraleft alliance of parliamentarians. Meanwhile, the centre has opposed the right’s felony and security plans.
Populist Le Pen may, however, be willing to moderate her position on other issues such as EU coordination and fiscal method, mirroring Italy’s nationalist Prime Minister Giorgia Meloni, who is often credited for her functional relations with pro-EU matches.
“[Le Pen] has been Euroskeptic, but I think there is a definite toning down of views,” Kumar said. “In that respect, maybe she behooves more like Meloni.”
Schmieding agreed that Le Pen could become more moderate if elected, saying that she may trough her inner Meloni in order to secure the ultimate prize: the 2027 French presidency.