Estimated time of reading: ~ 5 minutes

The results of France’s recent parliamentary elections have sent shockwaves through the country and the European Union. With no single party or alliance securing a majority, France now faces a hung parliament and an uncertain political future. This gridlock is likely to have far-reaching consequences for the French economy and its position within the EU. President Emmanuel Macron’s centrist coalition, Ensemble, came in second with 245 seats, well short of the 289 needed for a majority. This represents a significant setback for Macron, who had hoped to use the election to bolster his position and push through his reform agenda. The big winners were the left-wing New Popular Union (NUPES) alliance, which secured 131 seats, and the far-right National Rally (RN), which took 89 seats. While the NUPES’s victory is a blow to Macron, the RN’s strong performance is particularly concerning for the EU. Both the NUPES and RN have proposed expansionary fiscal policies that could put France’s government finances on an unsustainable path. The NUPES’s plans could lead to a deficit approaching 8%, while the RN’s measures, if implemented, would result in persistent deficits above 6%. The prospect of a less fiscally responsible government has already taken a toll on French bonds. Since the election was called, French bonds have significantly underperformed, with the 10-year bond yield aligning with or exceeding those of lower-rated peripheral countries like Portugal. Macron’s weakened position is likely to limit his ability to lead the EU. The success of the left-wing alliance could mean a less cooperative stance towards the EU, while the RN’s victory would likely lead to political friction with Brussels.

The GMF of Germany suggests that France’s role in the EU will hinge on the future balance of power between the president and the prime minister. Historically, and especially under Macron, political practice in the Fifth Republic has centralized power with the president. While it seems unlikely that the left bloc would prioritize foreign policy over domestic socio-economic issues, this situation introduces uncertainty for France’s partners. The most significant uncertainty arises from the upcoming budget negotiation, a major challenge for any new government given France’s tight state finances. The country’s ability to play a leading role in European defense or support for Ukraine will depend on whether the governing parties are willing to allocate funds for these purposes. Despite these uncertainties, the elections might present an opportunity to enhance cooperation with France’s key European partners, provided a stable government is formed. Following the recent election in the United Kingdom, three major European countries—France, Germany, and the United Kingdom—are now led by progressive governments. This aligns with the election of a pro-European government in Poland last year. The political uncertainty could lead to a prolonged governmental crisis, which would be bad news for the Franco-German engine of the EU. With pressing global challenges on the horizon, a weakened or constrained government in France is not a good sign for EU progress. The results of France’s parliamentary elections have upended the political landscape and raised serious questions about the country’s economic and European future. With the left and far-right gaining ground, Macron’s reform agenda is in jeopardy, and the prospect of fiscal instability looms large. As France navigates this uncharted territory, the ripples will be felt across the EU, potentially exacerbating existing tensions and complicating efforts to address the bloc’s challenges. The coming weeks and months will be crucial in determining the shape of France’s government and its place within the European project.

Written by: Nenad Stekić