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French election heralds a period of instability for Europe’s second largest economy

French election heralds a period of instability for Europe’s second largest economy

July 8, 2024
Judge`s gavel and block against the flag of France. French court conceptual 3D rendering

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There was an unexpected victory for the left-wing alliance, the New Popular Front (Nouveau Front Populaire, or NFP), in France’s General Election, with President Macron’s centrist Ensemble Alliance coming second and Marine Le Pen’s far-right National Alliance party pushed into third place. All three main groups fell well short of the 289 seats needed to control the 577-seat National Assembly.

The French Prime Minister Gabriel Attal has said he will resign, and a negotiation period will now take place to form a coalition government. The NFP has said it wants to govern. “The will of the people must be strictly respected … the president must invite the New Popular Front to govern,” said hard-left leader Jean-Luc Melenchon.

The NFP left-wing alliance made up of the French Communist Party, hard-left France Unbowed, the Greens and the Socialist Party has proposed a list of reforms relating to employment in France. Some of these come from NUPES (Nouvelle Union Populaire Ecologique et Sociale), the alliance formed to fight elections in 2022 led by Melanchon which included raising the net monthly minimum wage from EUR 1,399 (USD 1,515.72) to EUR 1,600 (USD 1,733.49), raising civil servants’ wages, increasing retirement pensions, introducing a “dignity guarantee” for the poorest and a monthly autonomy allowance for young people. The NUPES policy platform also defended reducing the legal retirement age from 62 to 60 without reducing the level of pensions and the creation of a tranche of new public sector jobs.

However, the NFP, which was formed after President Macron called the snap election only weeks ago, has no leader and its parties are strongly divided over who they could select as a suitable premier.

The euro fell on Sunday after the vote projections were announced. According to Reuters, France’s blue-chip CAC40 index dropped 0.6% (FCHI), and the gap between Germany and France’s ten year bond yields widened by two basis points to 70 bps after the result was declared. Investors also have concerns that the left’s plans could unwind many of President Emmanuel Macron’s pro-market reforms and believe a gridlock could end attempts to rein in France’s debt, which stood at 110.6% of gross domestic product in 2023.

The political wranglings are likely to result in a hung parliament and may last weeks before an agreement is reached. The instability could last until at least June 2025, as the president cannot call for new elections before then.