Marine Le Pen, member of parliament and French far-right National Rally party leader, arrives at the RN party headquarters in Paris, on July 1.Benoit Tessier/Reuters
Marine Le Pen’s far-right National Rally won the first round of the French election, but it was not a resounding victory, suggesting that a hung parliament is emerging as the most likely outcome when the votes are tallied after round No. 2 on July 7. Investors were pleased by the outcome. But to say that the relief rally will endure would be wildly premature.
The RN received 33 per cent of the high-turnout vote, while the left-wing New Popular Front landed second, with 28 per cent. The centrist bloc of President Emmanuel Macron was a distant third, at 20 per cent, justifying his critics’ warnings that calling the snap election when his ratings were sinking risked putting his Renaissance party on a suicide mission.
Investors signalled that a hung parliament is the least awful option, if only because it would deny the RN the ability to make good on its unfunded spending pledges. At the same time, it would reduce the chances that the party, with deep Euroskeptic roots, would risk opening an anti-Brussels assault like the one that sent Britain bolting from the European Union – Brexit – four years ago.
In their view, parliamentary paralysis might keep France’s economic numbers, notably the budget deficit and the debt to GDP, from trending down even further. Holger Schmieding, chief economist at Germany’s Berenberg investment bank, noted that the RN’s share was two points below opinion polling and that an RN majority in the run-off “now looks even slightly less likely than it did before.”
France’s benchmark CAC 40 index, which sank after Mr. Macron called the election last month, closed up a bit more than 1 per cent on Monday. French banks climbed. Two of the biggies, Crédit Agricole and Société Générale, were up more than 3 per cent. Even the euro nudged up against the dollar, and the risk spread between French and safe-bet German 10-year bonds narrowed a bit, though the yield on the French bonds remains relatively high.
Putting a lot of stock in this relief rally would be a mistake; investors seemed to take that view by the time the markets closed, as the market surge that came earlier lost some momentum. A week is a long time in a national election, and anything could happen between now and July 7. Just ask the American Democrats, who saw President Joe Biden’s ratings collapse after his sorrowful TV debate performance last week against Donald Trump.
Ms. Le Pen’s RN could still form a majority in the National Assembly. Far less likely is a majority by the left-wing coalition, which is also guilty of free-wheeling spending plans that could torpedo France’s credit rating. The next week will see a flurry of horse-trading among the parties on the left and right and the centrists, where many third-place candidates from the first round will be dropped to consolidate the pro- or anti-RN votes.
The French press is saying that as many as 300 of the 504 seats in the National Assembly could be in a three-way fight in the second round. The RN needs to win half of those seats to command an absolute majority and install Jordan Bardella, Ms. Le Pen’s 28-year-old protégé, as prime minister (no matter what happens, Mr. Macron will remain as President, though his powers would be largely limited to foreign affairs and defence, and making lame appearances at G7 and G20 summits).
My own view is that an outright RN victory in the run-off, while seemingly less likely today, is still possible, depending on how many third-place candidates are sent on gardening leave. But I also think that an RN victory would not be an outright disaster for the French economy or the financial markets. For sure, Ms. Le Pen and Mr. Bardella would be tough on migrants and soften France’s support for Ukraine in its war against Russia. But would they open the spending spigots to the point that investors flee and credit-rating agencies downgrade French debt to junk? That seems unlikely.
Her model may be Italian Prime Minister Giorgia Meloni, whose far-right Brothers of Italy party won the June European election; she is the most popular leader among the EU’s biggest economies. Ms. Meloni has been fairly restrained on the fiscal front, to the point that Italy’s various economic indicators, from GDP growth to inflation, are running at somewhat less grim paces than France’s. The RN, assuming an outright victory, may take a lesson from Ms. Meloni. Global investors can turn nasty fast and, if they do, Ms. Le Pen’s star could fade as fast as Mr. Macron’s did.
Eric Reguly