French President Emmanuel Macron’s unexpected decision to dissolve the National Assembly and call for snap legislative elections on Monday, June 10th, sent shock waves through financial markets and heavily impacted the euro. This move followed a significant defeat for his Renaissance party in the European Parliament elections, where the far-right National Rally emerged victorious.
The decision to hold new elections on June 30 and July 7 came after exit polls indicated a strong performance by the National Rally, led by Marine Le Pen. This outcome threatens to complicate Macron’s ability to govern and pursue his centrist policy agenda. As a result, France’s CAC 40 index fell by 1.8%, with banks like Société Générale, BNP Paribas, and Credit Agricole experiencing significant losses.
The euro also took a hit, dropping 0.6% against both the US dollar and the British pound, reaching its lowest levels in recent months. Analysts attribute these market reactions to concerns about the potential for a fragmented parliament, which could impede Macron’s ability to implement reforms and manage France’s budget deficit, which stood at 5.5% of GDP last year.
In a televised address, Macron acknowledged the electorate’s message, stating, “I’ve heard your message, your concerns, and I won’t leave them unanswered.” He emphasized that the snap election would reaffirm his commitment to democratic principles despite the risks it poses to his party’s future.
The market’s volatility reflects broader concerns about France’s economic stability. Johann Scholtz, an equity analyst at Morningstar, noted that the National Rally’s interventionist economic policies could further destabilize the financial sector. This sentiment was echoed by other analysts, who highlighted the challenges of reducing France’s substantial public debt, which stands at 110.6% of GDP.
The yield on French government bonds rose to its highest level since November, indicating increased investor caution. The spread between French and German bond yields also widened, signaling heightened perceived risk associated with French debt amid the current political uncertainty.
The broader European context also played a role, with the far-right gaining ground in other countries, such as Germany, where the Alternative for Germany party surged in the polls. These developments underscore the growing influence of far-right parties across Europe, fueled by voter dissatisfaction with traditional political establishments.
As France braces for the upcoming legislative elections, the implications for both domestic policy and broader European stability remain uncertain. The results will not only determine Macron’s ability to govern effectively but also influence market confidence in the French economy.
