France Election Result 2024: Far Right Dealt Blow

France Faces Period of Uncertainty

French voters elected a fractured National Assembly with three main blocs, none close to an outright majority. The left-wing alliance Nouveau Front Populaire led with 180 seats, followed by President Macron’s centrist alliance with 159 seats and Marine Le Pen’s far-right National Rally with 143 seats. Negotiations are ongoing to form a coalition government or a minority government that could survive no-confidence votes. Macron’s centrists hope to form a German-style grand coalition, but challenges lie ahead.

Key Points:

• French voters elected a fragmented National Assembly with three main blocs: left-wing, centrist, and far-right parties. The anti-Le Pen movement strategy of dropping one of their candidates in three party races for parliament worked. There were over 300 three-way races throughout France, the strategy reduced this number down to about 88. This strategy paid off as candidates from the left-wing or centrist parties picked up the votes to prevent a far-right win in those areas.
• Negotiations are ongoing to form a coalition government or a minority government to avoid political paralysis.
• Macron’s centrists aim to form a grand coalition akin to Germany’s setup, aiming to exclude the far-left and unite with center-left parties.
• A technocratic government led by a non-partisan figure could be a fallback option if coalition talks fail, with another election possible in 2025.
• The outcome remains uncertain, with potential for prolonged political confusion and challenges in meeting the demands of various political factions.

The fragmented nature of the National Assembly reflects the growing polarization and diverse political landscape in France. This could make it challenging to pass legislation and implement key reforms, especially on contentious issues such as immigration, economic policies, and European integration.

The rise of the far-right, under Marine Le Pen poses a significant challenge to the traditional political establishment in France. Le Pen’s party has capitalized on anti-immigration sentiment and discontent with the status quo, gaining significant support in recent years. In the recent parlimentary elections

President Macron’s party faces the task of navigating these complex political dynamics to maintain stability and govern effectively. The success of his presidency and his ability to address the concerns of various segments of society will largely depend on his coalition-building skills and ability to find common ground among different political forces.

A complicating factor the relationship between the far-left firebrand Jean-Luc Mélenchon’s France Unbowed, that has already ruled out working with the liberals of President Macron. The Prime Minster, Gabriel Attal, from Macron’s party has also stated that he would never share power with Mélenchon.

The result is that whatever emerges is unlikely to be stable for long. The first flashpoint will be the budget talks in autumn. With France already under EU pressure to cut the deficit, it is difficult to see how the diametrically opposed views of the liberals and left can agree on the budget.

Potential Scenarios:

1. Coalition with Moderates: The Nouveau Front Populaire bloc may seek alliances with moderate parties to form a stable government. Collaboration with centrist and moderate-right parties could ensure a majority and bring stability to the political landscape.
2. Left-Wing Coalition: Another possibility is a coalition solely among left-wing parties, including the Nouveau Front Populaire, Socialists, and Greens. This alliance would focus on progressive policies and could lead to significant reforms in various sectors.
3. Minority Government: If coalition negotiations fail, a minority government led by the Nouveau Front Populaire bloc might be formed. However, governing with a minority would require support from other parties on a case-by-case basis for passing legislation.
4. New Elections: In case of prolonged deadlock or instability, the option of calling for new elections could be considered. This scenario would prolong the uncertainty but might be necessary to break the impasse and allow voters to decide on a clearer direction.  For example, new snap elections could be called next year.

Implications:

• The outcome of coalition negotiations will significantly impact policy directions in France, including economic, social, and environmental measures.
• The ability to form a stable government will influence France’s standing in the European Union and international relations. There is a strong possibility that the French goverment has diverging views on the Ukraine-Russia War, the EU and role in NATO depending on the coalition and power-sharing arrangements.
• The success of anti-RN strategies in this election could set a precedent for future elections and shape the political landscape in France for years to come. The far-right under Le Pen already has used the narrative that the election was stolen from them as a result of the second-round strategy implemented by the anti-Le Pen parties. With increased funding available now that they have more seats and the rhetoric of unfairness, this could translate into more power in the future.

Most Probable Outcome

A majority bloc of Macron and center allies with the Socialists, Greens and Communists is possible.  That would exclude the far-left firebrand Jean-Luc Mélenchon’s France Unbowed party.  The sticking point would be the retirement age and pension reforms.  This would require hard negotiations to succeed as a block with compromise all around.   In addition taxes would be an issue with compromise needed there.

Thus, expect a bit uncertainty for France which means wider bond spreads and perhaps a political risk premium for stocks.  Also, the Euro should weaken a bit.