What France’s Left-Wing Coalition’s Surprise Election Win Could Mean for Markets
By Jose Resurreccion
Jul 08, 2024 12:59 AM EDT
Jul 08, 2024 12:59 AM EDT
(Photo : ROMAIN PERROCHEAU/AFP via Getty Images)
France's snap general election revealed an unexpectedly strong second-round result from the New Popular Front, a coalition of left-wing parties, against the right-wing bloc National Rally headed by Marine Le Pen over the weekend.
Reuters reported that Sunday's (July 7) result reversed a previous round of elections that saw National Rally come out on top.
Such an outcome prompted multiple leftist rallies nationwide to call on its supporters to reverse the turnout.
Because the leftist bloc's second-round victory won them the most seats, President Emmanuel Macron's Ensemble party had the second-largest, and the National Rally placed third, political commentators expected that the National Assembly, the French legislative body, would have a "hung parliament" scenario that could prove challenging for policymaking and the financial markets.
The Associated Press reported that none of the three groups got the 289 seats needed to form an absolute majority, which meant that political gridlock and the need to compromise a unity, coalition, or minority government were expected.
CNBC reported that the Euro slipped about 0.3% against the US dollar since the second exit poll round was released.
Previously, analysts from Citi warned that stock markets could also be affected as a deadlock would imply that equity market valuations would drop between 5% and 20%.
On the other hand, Daiwa Capital Markets analysts suggested that there could be economic uncertainty if no single party managed to form an absolute majority government.
It is understood that both the New Popular Front and the National Rally have radically different tax and spending plans after Macron's government struggled to stabilize the French economy, especially as the capital city of Paris will be hosting the Olympics later this month.
The European Commission announced a few weeks ago that it intended to place France under an Excessive Deficit Procedure (EDP) for failing to keep its budget deficit within 3% of its gross domestic product (GDP).
An EDP is applied to a member state of the European Union (EU) if it exceeds the budgetary deficit or fails to reduce its national debt.
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