French Election Casts Shadow over Europe
European leaders may shun foreign policies to address domestic troubles
France has taken an unexpected political turn after a far-left alliance won the second round of snap elections, an outcome that may impact European Union (EU) foreign policy as Paris looks inward as it struggles to form a national government.
The results of the July 7 vote left the New Popular Front, a far-left coalition of parties, with 188 seats, French President Emmanuel Macron’s Renaissance centrist alliance with 161 seats, and Marine Le Pen’s National Rally in third place with 142 seats.
With the far-left falling short of the 289 seats out of 577 required for an absolute majority in parliament, lawmakers in the split lower house may now struggle to build consensus across the ideologically different parties.
Macron took a political risk by calling for two rounds of snap elections on June 30 and July 7, following his centrist Renaissance party’s poor performance in the European Parliament elections from June 6-9. Macron’s political gamble now leaves France with a hung parliament, without one political party in a position to build national consensus.
Manfred Weber, president of the European People’s Party, said on X that “far from clarifying the political situation, Macron plunged France into confusion, strengthening the extremes.”
Domestic Troubles
France isn’t the only European country at the moment in the midst of its own domestic political troubles.
German Chancellor Olaf Scholz, whose coalition only won 31% of the European Union election last month, will likely be distracted by internal politics as he tries to prevent his weakened government from collapsing.
British Prime Minister Keir Starmer will have to focus on winning public approval after only 60% of eligible voters participated in the election, making it one of the lowest turnouts in British history since 1885. Starmer won his seat on July 4 despite receiving 17,000 fewer votes than in 2019.
These domestic political developments could have far-reaching implications for the war in Ukraine, global diplomacy, the war in Gaza, EU-wide policy-making, and Europe’s economic stability. The countries’ political leaders meet in Washington today for a NATO summit that aims to bolster support for Ukraine and strengthen their defense and deterrence capabilities.
Leadership Questions
A weak Germany and France pose questions about leadership in Europe, Mujtaba Rahman, Europe head of the Eurasia Group, a risk consultancy, said.
“Macron has been constantly pushing for more ambition in Europe, pushing for more coherence and for Europe to become a more important geopolitical and geostrategic player in the world,” he said. “With him fundamentally weakened at home, distracted by the need to form a government, it will be very hard to continue to play that role.”
Macron has had a significant impact on European politics since becoming president in 2017. He has reshaped the EU’s trade agenda and pushed for a more ambitious industrial defense and competitiveness agenda.
“It is common knowledge that Germany is Europe’s most important country due to its size and especially due to its economy, but France is the continent’s most dynamic country,” Niccolo Soldo, a writer on European affairs, said in a post on the fallout of the French elections. “France has never let go of its pride and patriotism.”
Tensions Brewing
Tensions, though, are already brewing between Macron and the far-left coalition, creating uncertainty about domestic politics as populism, either on the left or right, disrupts the political landscape.
Macron and Jean-Luc Mélenchon, head of the far-left France Unbowed party, disagree on who should be the next prime minister. Macron has asked his prime minister, Gabriel Attal, who handed in his resignation on July 7, to remain in his post "for the time being to ensure the country's stability."
Mélenchon has demanded that Macron choose a prime minister from the New Popular Front coalition. He said: “The president has the power and the duty to call the New Popular Front to govern. It is ready.”
Macron described the leftist coalition as “extreme” and warned that its plans to roll back some of his reforms and increase public spending could be disastrous for the French economy and debt. Mélenchon has said that decrees could be issued to repeal Macron's pension reform and increase France’s minimum wage.
The group also wants to implement a 10% pay rise for civil servants, raise housing subsidies by 10%, and hire more teachers and healthcare workers. Extra measures will mean progressively boosting public spending by €150 billion as a result. The coalition could raise the top marginal income tax rate to 90%, Bloomberg News reported on June 23.
Outgoing Finance Minister Bruno Le Maire already warned that the country was facing an immediate risk of financial crisis and economic decline.
Le Pen
Le Pen will be a thorn in the side of any coalition government. Support for Le Pen’s party has increased in the last decade, bringing it from the margin of France’s political landscape to the center with populism changing the country’s political dynamics.
The party’s leader, Jordan Bardella, criticized what he called the “unnatural alliance” between Macron and the leftists “to stop by all means National Rally’s most important surge of its history.”
While not winning the election, as some had expected, the National Rally received 37% of the votes, the most of any party. That is a significant increase compared with only 0.08% of votes in 2007.
“I’m not disappointed by a result where we double our number of MPs,” Le Pen said. “In the face of a coalition of every other party, aided by the media which took clear sides, we are the biggest party in votes and seats. The tide is rising and our victory is only deferred.”
Financial Challenges
After the first round of elections at the end of June, with a decreasing likelihood of a far-right majority, French stocks surged, easing some uncertainty. By July 2, European stocks fell to a two-week low, before recovering.
The volatility index tracking the Euro Stoxx 50 also narrowed a gap against its US equivalent in June after the spread increased to its highest level in over two years.
CAC 40, a benchmark French stock market index, increased by as much as 0.8% on July 8 but remained 3.7% below levels before the snap election announcement and was the worst performer among major European stock indexes since Macron called the snap elections.
In the bond market, investors will likely impose increased interest rates on French government borrowing, including a 5.5% deficit and a debt to GDP of 110.6% in 2023, which are both above the EU’s limit.
“Fundamentally from a market perspective, there’s no difference in terms of the outcome,” Simon Harvey, head of FX analysis at Monex Europe, said. “There’s really going to be a vacuum when it comes to France’s legislative ability."