French Election Special

This morning marks the first official day of campaigning in France, with the legislative elections just around the corner.

Here, the French electorate will decide on the makeup of the 577 deputies of the National Assembly, over two rounds.

During the first-round (30 June) candidates must win over 50% of the vote share, alongside 25% of the number of registered votes.

Assuming no candidate gets both of the above, the two candidates with the highest vote share (and any that receive above 12.5% of the registered vote share) advance to the second round (held on 7 July). There, the candidate with the highest number of votes wins the seat.

A party – or alliance – would therefore need 290 deputies to form a government.

Presently, Marine Le Pen’s far-right Eurosceptic Rassemblement National party is polling at 33% ahead of Macron’s centrist and pro-European Renaissance party which has 19%, having dominated the European Union elections earlier this month. Elsewhere, the former party of Jacques Chirac and Nicolas Sarkozy – the centre-right Les Républicains – is polling at just 7%.

With Macron due to stand down from the Office of the Presidency in 2027, pollsters suggest that Le Pen could well take his place after the next Presidential election.

With their position in the polls continuing to dominate headlines, markets are considering the implications that Marine Le Pen’s far-right Rassemblement National party could have on Paris’ fiscal policies.

For example, analysis shared by Asterès Research in the FT identified that RN’s fiscal loosening measures announced during the last election would rise France’s peak annual public deficit as a share of GDP by an extra 3.9 percentages points.

Given that is more than double the impact that Liz Truss’ October 2022 fiscal loosening announcements had, concern is building that such polices could put insurmountable pressure on France’s finances and borrowing costs.

It’s worth noting that France already has a budget deficit of around 5% of GDP – the second highest in the Eurozone and over three times that of Germany – with many therefore arguing that Paris should look towards fiscal tightening to shore up their financial position.

While the existing government has already tried to address some of these issues, policies like increasing the state pension age have been deeply unpopular with popular protests unfolding across Europe’s second largest country.

With political and economic uncertainty looming large in France, the CAC 40 index extend losses on Friday, retreating just shy of 3% over the session. By Friday’s close, the French blue-chip index was trading at around five-month lows, having suffered its worst week in well over two years. Stocks in the financial services sector came under particular pressure on Friday, with France’s biggest bank BNP Paribas down 3.5% on the day, given their exposure to France’s government debt and the possibility of RN toying with putting windfall taxes on some in the space.

Alongside election coverage both sides of the Channel and across the Atlantic, this week’s major data releases include a string of inflation data with the Eurozone’s released tomorrow and the UK’s on Wednesday. Markets will also look towards interest rate decisions held on Wednesday, with the PBoC, SNB and BoE all holding monetary policy meetings.