France Gets PPP - Protracted Policy Paralysis?
French politics is getting used to surprises. After the unexpected snap election that saw the far right poll the most in the first round of parliamentary results last week, Sunday’s second round surprisingly saw President Macron's centrist forces perform more strongly than expected by coming in second behind the resurgent left alliance, with the far right (that won the first round) trailing in third place. Notably, the far right still has the most seats it has even earned, but none of the three political blocs has anything near the 279 seats need to form a working parliamentary majority. As we and many others have speculated, this is likely to mean effective policy paralysis not least as there is no real precedent for any coalition between the blocs, all of which will accentuate existing fiscal worries. But outside of France, there is some relief that the far right have not won power, with the tactical voting that undermined them in the second round, highlighting how difficult it will be for the Le Pen or other far right contenders to win the presidency.
As for details, the New Popular Front (basically the Socialists and far-left France) won 178 seats in the National Assembly; Le Pen’s National Rally, which polled the highest in the first round, won 143, while President Macron’s centrist alliance came second with 156, notably well down on its previous showing. Thus all fell far short of the 289 required for an absolute majority in the 577-seat lower house. As a result, France now faces not only a hung parliament but a protracted one as the constitution makes it difficult to have fresh election for 12 months. In the interim, there are some options. Macron could try to cobble together a coalition of his centrist bloc and some of the left (the Socialists have already made some conciliatory gestures). Alternatively, Macron could nominate a technocratic administration, but even this would mean a weakened government that will have trouble passing any meaningful legislation.
Thus either may lead to even greater policy paralysis than that which persuaded President Macron to call this snap election, compromising any ability and willingness to address growing fiscal problems with a structural budget gap stuck at 5% of GDP and inter-related rising debt ratios. Admittedly, a government, even as a minority has options, most notably to use the article 49.3 procedure further, with Macron having used this constitutional tool to pilot through both the 2023 and 2024 budget laws, which allows finance and social security bills to go ahead without a parliamentary vote. This may be something a possible technocratic government may attempt but would have to contend with possible motions of no-confidence which it could very well lose. All of which suggests the next year may see effective policy paralysis, not just on vital fiscal legislation but widely so and with parliamentary divisions likely to be even more open and vocal. Fiscally, all of the political blocs have manifestos consistent with clear or even significant government spending increases opposed to the cuts that the EU may be pressing for, the question (certainly for bond markets) being how soon and how vocal may be demands from Brussels for France to accentuate fiscal consolidation measures.
But outside of France, there is some relief that the far right have not won power, with the tactical voting that undermined them in the second round, highlighting how difficult it will be for the Le Pen or other far right contenders to win the presidency. Indeed, such tactical voting has undermined Le Pen in her presidential pursuits, raising the question as to how she may try and reshape her party's image to make it more palatable to the electorate