The centrist and moderate left parties will likely reach a compromise to form a functional minority government, a grand coalition, or a technocratic government that excludes both far-right and far-left parties. Parliamentary elections in France have resulted in a Parliament with three largely equal blocs, none of which is close to an absolute majority or particularly willing to cooperate. This will likely result in weeks or even months of political uncertainty and political paralysis until a new government is appointed.
Under the French Constitution, there is no deadline for appointing a new prime minister and Macron cannot call new parliamentary elections for another year. This means that, short of a complete deadlock, three scenarios are possible between now and June 2025, when elections might theoretically be held once more. In the first scenario, Macron might appoint a minority government that will try to secure parliamentary majorities to pass bills on a case-by-case basis. But forming such a government would prove complicated. A left-leaning minority government that includes Mélenchon’s far-left party is unlikely, given the party’s intransigent stance. A centrist minority government led by Ensemble would require compromises with several other parties on contentious issues such as fiscal spending and Macron’s pension reform.
A right-wing minority government led by E.S. it would be highly unlikely to receive the support of any opposition MP in the National Assembly. In a second scenario, Macron might appoint a coalition government between the centrist Ensemble coalition, moderate left-wing parties (such as the Socialists and Greens) and a limited number of centre-right MPs. But even excluding the far-left LFI, such a deal would still be extremely difficult to achieve and highly unlikely to last, given Macron’s anti-populism and ideological differences between Ensemble and the Center Left.
Finally, in a third scenario, Macron might appoint a technocratic government headed by a non-partisan, consensus leader, tasked with passing the 2025 Budget and managing day-to-day affairs, as well as assuring markets and allies of France for stability. But while technocratic governments are common in Italy, there are no precedents for this in France. More importantly, a coalition between Ensemble and the Center Left would require compromises on a myriad of contentious political issues, as well as potential no-confidence motions.
The French Parliament, without an absolute majority, will increase political uncertainty, likely canceling the possibility of significant fiscal consolidation and a boost to growth in the coming months. While markets reacted relatively positively to the large initial lead of the E.S. following the first round of parliamentary elections, the surprise victory of the Left in the second round and the election of today’s Parliament have complicated France’s political outlook at a time when the country’s fiscal position is deteriorating.
That will likely continue to unnerve investors, who will be closely watching government formation talks in the coming weeks. If those talks are delayed or ultimately collapse, the resulting prolonged political paralysis might seriously shake bond and equity markets and potentially prompt investors to demand a higher premium on French government bonds, leading to higher interest rates for Paris. Even following a new prime minister is appointed, a moderate minority government or a broad-based coalition government will likely struggle to approve a medium-term fiscal adjustment path that France must submit to the European Union by Sept. 20, respectively and the government’s Budget proposal in French Parliament until mid-October – significantly complicating fiscal consolidation efforts and likely maintaining increased pressure on French bonds.
More broadly, the centrists will likely have to moderate some of Macron’s economic reforms (such as the controversial increase in the retirement age) and implement some form of tax increase. A technocratic government, on the other hand, will prioritize passing next year’s Budget in a bid to reassure markets, but will still struggle to secure parliamentary approval for the spending cuts needed to significantly reduce public spending. debt of France. In the medium term, a deadlocked Parliament significantly reduces the likelihood that Paris will pursue deficit-financed spending increases that would put it on a collision course with Brussels, spook investors and further roil markets as the next French government will likely lack the support in Parliament and the internal cohesion to implement developmental fiscal policies. But this also significantly reduces the prospect of any significant fiscal consolidation and growth-boosting structural reform until the next presidential election in 2027.
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