France appears to be heading toward political instability after a surprise victory by a left-wing coalition in legislative elections on Sunday, leaving no party able to claim the majority needed to govern.
The New Popular Front party — which includes the Socialists and the far-left La France Insoumise — is forecast to win between 171 and 205 seats in the National Assembly. Marine Le Pen’s National Rally, which pollsters last week predicted would win the most seats, is expected to come in third with between 130 and 152 seats, while President Emmanuel Macron’s centrist coalition is forecast to come in second with between 152 and 180 seats.
But while all three groups will fall short of the absolute majority (289 seats) needed to secure a majority in the 577-seat parliament, it is unclear how the country, which has no tradition of coalitions, will be able to form a government capable of passing laws.
French Prime Minister Gabriel Attal announced that he will submit his resignation to Macron on Monday, which will mark the beginning of the process of forming a new government.
The euro fell in early trading as investors digested a result that few expected and brought back concerns about France’s financial woes, with parties committed to a big increase in public spending.
The Montaigne Institute estimates that the New Popular Front’s campaign pledges will require around €179 billion ($194 billion) in additional funds annually. The far-right National Rally’s plans will cost around €71 billion, while Macron’s party and its allies will incur an additional expenditure of around €21 billion.
Le Pen gave a positive picture of the results, noting that the National Rally, which had 89 seats in the previous legislature, was on track to win the most seats of any single party.
“The tide is rising, not high enough this time, but it’s still rising,” Le Pen said.
The unexpected result means that no coalition has enough seats to govern with an absolute majority, fracturing the legislature into three distinct groups with divergent agendas. Macron will wait for the new composition of the National Assembly before making any further decisions on naming the next prime minister, according to a statement from an Elysee Palace official.
France will now face two choices, without much precedent in the history of the modern republic. Macron could try to form a coalition of willing but not always like-minded parties, but that would require the New Popular Front to break up and reconstitute behind the president without its most radical elements.
Or Macron could appoint a technocratic administration that can bridge the political turmoil. Either solution would likely weaken the government, which would struggle to pass any meaningful legislation, and reduce its influence on the international stage.
“The absence of a majority and the absence of a government would expose France and the French people to enormous danger,” French Prime Minister Edouard Philippe warned on Sunday evening. “Now the central political forces have a responsibility they cannot evade: they must work to reach an agreement free of shame that will stabilize the political situation.”
Jean-Luc Mélenchon, leader of the France Insoumise party, told supporters on Sunday that his new Popular Front would implement its programme in full and that he would refuse to enter into a deal with Macron. But Socialist Party leader Olivier Fauré struck a more conciliatory tone, saying the party’s mission was to “find a path” to respond to the needs and demands of the French people.
French assets fell in the days after Macron called early elections four weeks ago, but rebounded late last week as traders began to discount an absolute majority for Le Pen’s far-right party and embrace the prospect of a faltering government in which neither the right nor the left has unfettered power.
Although the lower-than-expected number of seats for Le Pen’s party and the increase in Macron’s bloc came as a relief to some traders, the victory of the leftist bloc is likely to hurt French assets in the coming weeks.
Vincent Gouvens, global market strategist at JPMorgan Asset Management, sees this showing up in the spread between French and German bond yields, which he expects to widen.
“The European Commission and rating agencies are expecting cuts of €20-30 billion, but the government will actually have to deal with a party that wants €120 billion more in spending. This could create tension in the markets in the coming weeks. Markets may demand a higher spread as long as the new government has not clarified its fiscal position,” said Govens.
Sunday’s forecast offers some justification for Macron’s call to dissolve parliament after a crushing defeat by Le Pen’s party last month. He has been widely criticised for the decision after his party came third in the first round of voting last week, in which Le Pen seized the initiative.
The past week has seen a frantic effort to activate the so-called Republican Front – an arrangement in which major parties strategically withdraw candidates from certain races to boost votes against the National Rally. Macron’s party pulled 76 candidates from the second round, where they had little chance of winning, in order to avoid splitting the anti-Le Pen vote. The New Popular Front pulled 130 candidates.
National Rally leader Jordan Bardella criticised the strategy, saying the approach taken by the Elysee Palace “is going nowhere”.
Forming a new government will be complex and could take a long time, Antonio Barroso, deputy director of research at Teneo, wrote in a note.
“This hesitation poses a risk to the country that no one should underestimate,” Philippe said. “Our country’s credibility could be damaged, as could its credit.”
