{"id":87970,"date":"2024-07-14T15:00:00","date_gmt":"2024-07-14T12:00:00","guid":{"rendered":"https:\/\/ironfx-com-php8.wp-dev.int.theitops.net\/?p=87970"},"modified":"2024-07-11T13:29:49","modified_gmt":"2024-07-11T10:29:49","slug":"european-markets-prepare-for-french-political-turmoil","status":"publish","type":"post","link":"https:\/\/www.ironfx-cn.com\/en\/european-markets-prepare-for-french-political-turmoil\/","title":{"rendered":"European markets prepare for French political turmoil"},"content":{"rendered":"\n
An unexpected victory for the leftist New Popular Front (NPF) causes the euro to fall as markets fear a radical spending spree. The left-wing alliance has secured the most seats in Sunday\u2019s French elections. However, France faces political uncertainty, as no party came close to winning an absolute majority.<\/p>\n\n\n\n
With no possibility of calling a new election for at least another year and three years remaining in his term, President Emmanuel Macron looks set to oversee an unruly parliament, as domestic and international challenges continue to mount.<\/p>\n\n\n\n
The euro declined by 0.3% in early Asian trading on Sunday following the victory of France’s New Popular Front party in the country’s legislative elections.<\/p>\n\n\n\n
Political uncertainties drive market volatility<\/strong><\/strong><\/h2>\n\n\n\n
Political uncertainties are set to continue driving market volatility in Europe following the surprising outcome of the French election on Sunday. According to pollsters from the second round of the election, the right-wing New Popular Front (NFP) coalition unexpectedly took the lead in public votes, defeating the far-right National Rally (NR). The NFP is projected to secure between 177 and 192 seats, while Emmanuel Macron’s centrist party came in second with between 152 and 158 seats. The previously expected winner, the NR, led by Marine Le Pen and Hirdan Bardella, may only secure between 138 and 145 seats.<\/p>\n\n\n\n
A hung government appears to be the most likely scenario for France, and Prime Minister Gabriel Attal has stated he will resign amid the projection.<\/p>\n\n\n\n
Despite the unexpected results, no party is likely to achieve an absolute majority, increasing the possibility of a hung parliament. This split in political powers will create further uncertainties regarding critical policies, particularly in government finance.<\/p>\n\n\n\n
How France voted<\/strong><\/h2>\n\n\n\n
In a surprising result, the New Popular Front (NFP), a coalition of several parties ranging from the far-left France Unbowed party to the more moderate Socialists and the Ecologists, secured 182 seats in the National Assembly. While this makes the NFP the largest group, it falls short of the 289 seats needed for an absolute majority. Macron\u2019s centrist Ensemble alliance secured 163 seats, while Marine Le Pen\u2019s far-right National Rally (RN) party and its allies secured 143 seats.<\/p>\n\n\n\n
What the result means<\/strong><\/h2>\n\n\n\n
The RN\u2019s strong performance in the first round raised fears that France might be on the brink of electing its first far-right government since the collaborationist Vichy regime of World War II. However, Sunday\u2019s results were a major upset, showing French voters\u2019 strong desire to prevent the far right from gaining power, even if it results in a hung parliament.<\/p>\n\n\n\n<\/figure>\n\n\n\n
Mixed reactions<\/strong><\/h2>\n\n\n\n
Cheers rang out on the streets of Paris as projected results indicated a leftist victory. Speaking to a crowd of ecstatic supporters near Stalingrad square, Jean-Luc M\u00e9lenchon, the outspoken leader of France Unbowed, declared the results a \u201chuge relief for the overwhelming majority of people in our country.\u201d Meanwhile, Jordan Bardella, the 28-year-old-leader of the far-right National Rally (RN), stated that France had been thrown into \u201cuncertainty and instability.\u201d<\/p>\n\n\n\n
Who will be the next Prime Minister?<\/strong><\/h2>\n\n\n\n
Prime Minister Gabriel Attal, Macron\u2019s protege, announced he would resign on Monday morning, leaving his successor uncertain. Sunday\u2019s results suggest Macron may have to appoint a figure from the left-wing coalition, a rare arrangement known as a \u201ccohabitation.\u201d However, members of Macron\u2019s party have repeatedly said they will not work with France Unbowed, saying it is just as extreme and unfit to govern as the RN.<\/p>\n\n\n\n
It\u2019s a complicated situation<\/strong><\/h2>\n\n\n\n
\u00c9douard Philippe, France\u2019s former prime minister and an ally of Macron, described the president\u2019s decision to call a snap election as resulting in \u201cgreat vagueness.\u201d \u201cThe truth is that none of the political blocs in the assembly has a majority on its own to govern,\u201d he said. \u201cThe central political forces therefore have a responsibility to stay. They must, without compromise, promote the creation of an agreement that will stabilise the political situation.\u201d<\/p>\n\n\n\n
Euro swings amid political uncertainties<\/strong><\/h2>\n\n\n\n
The euro experienced significant fluctuations against other G-10 currencies in early June following French President Emmanuel Macron\u2019s call for a snap election after being defeated by far-right party leader Marine Le Pen in the European Union Parliamentary elections. The single currency depreciated as much as 2% against the US dollar, dropping to 1.0664 in the second half of June. Subsequently, the pair rebounded sharply to above 1.08 following the first round of the French election, which showed Le Pen’s far-right party falling short of an absolute majority in parliament. However, Sunday’s results renewed pressure on the euro, with the exchange rate between the euro and the greenback initially opening lower at 1.08 before swiftly rebounding to 1.0823 at 2:30 am CEST.<\/p>\n\n\n\n
The resilient movement in the euro suggests that investors may be less concerned about a left-wing government than about a far-right ruling party. However, the election runoffs remain the key to influencing market sentiment this week. Whether the left-wing parties, including far-left France Unbowed, the Socialists, and the Greens, can remain united will be critical for France’s future.<\/p>\n\n\n\n
Growing concerns over French public finances<\/strong><\/h2>\n\n\n\n
Concerns are mounting as one of the NPF’s leaders, Jean-Luc Melenchon, called for the alliance to govern the country without negotiating with other parties. The alliance’s manifesto includes plans to increase public spending, reduce the retirement age, raise the minimum wage, and impose caps on the prices of food and energy. These measures have the potential to increase the government deficit and worsen France’s finances, which are already under pressure with a deficit currently at 5.5% of economic output, well above the European Union’s (EU) threshold of 3% in 2023.<\/p>\n\n\n\n
In June, when the French elections projected losses for President Macron’s centrist party, the EU placed the country under an \u201cexcessive deficit procedure\u201d. France has to reduce its deficit by 0.5% per year under the new rules, although specific recommendations for deficit reduction won\u2019t be issued until a new commission takes office in November.<\/p>\n\n\n\n
French markets prepare for political turmoil<\/strong><\/h2>\n\n\n\n
Following the first round of the French election, European stock markets experienced a strong rally after a recent downturn. The far-right party led by Le Pen’s appears unlikely to secure monopolistic power. After reaching an eight-month high of 3.37%, 10-year government bond yields fell to 3.21% on Friday. The hardest-hit sectors such as banking stocks and green energy shares saw notable rebounds. The French benchmark index, the CAC 40, rebounded by 2.7% from its June lows.<\/p>\n\n\n\n
The outcome of the election\u2019s second round does not seem to differ significantly from the first round. Investors may be relieved in the diminished influence of the far-right on policy-making, although there are concerns regarding the fiscal stability due to the left-wing’s spending plans. A hung government could be the best outcome for market sentiment as neither the far-right nor left-wing coalition can easily push through their high spending plans.<\/p>\n\n\n\n<\/figure>\n\n\n\n
Analysis: Macron’s gamble keeps far right out of power, plunging France into chaos<\/strong><\/h2>\n\n\n\n
Analysis from CNN’s Sakya Vandoorne<\/p>\n\n\n\n
\u201cI threw my live grenade at their feet\u201d is how French President Emmanuel Macron reportedly called for snap elections following a significant far-right victory in June\u2019s European elections.<\/p>\n\n\n\n
It was an explosive gamble and the final outcome took the country by surprise: France\u2019s left-wing alliance secured the top spot with 182 seats and the far-right trailed in at third place \u2014 a shocking reversal of the previous Sunday\u2019s first-round results.<\/p>\n\n\n\n
On Place de la Republique in Paris, the projected results were met with huge applause and fireworks as people embraced each other, breathing a collective sigh of relief that France had been saved from disaster.<\/p>\n\n\n\n
Voter turnout on Sunday was the highest in over two decades as French citizens took to the ballot box to make their feelings known: they did not want the far right to govern.<\/p>\n\n\n\n
However, with the left falling short of the 289 seats required for a majority and with a weakened president, the national assembly is expected to be more divided than ever.<\/p>\n\n\n\n
What\u2019s inevitable is that France is about to enter a prolonged period of instability as three rival blocs with competing ideas and agendas attempt to form a coalition or find themselves stuck in a state of paralysis.<\/p>\n\n\n\n
With such a divided parliament, major structural reforms at a domestic level seem unlikely, leaving the leftists reliant on ad hoc alliances to vote through individual pieces of legislation.<\/p>\n\n\n\n
Disclaimer: This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"
An unexpected victory for the leftist New Popular Front…<\/p>\n
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