Édouard Carmignac says markets will keep French far right on ‘tight leash’

Financial markets will keep France’s far-right Rassemblement National “on a very tight leash” if the party wins upcoming parliamentary elections, limiting its scope for a big spending push, one of France’s best-known fund managers has said.

Édouard Carmignac, chair and chief investment officer of the eponymous asset manager he founded 35 years ago, said he expected political gridlock and discipline imposed by markets to “limit meaningfully the potential damage the RN can do by overspending”.

Emmanuel Macron’s decision to call a snap vote following a heavy defeat in European elections earlier this month sparked turmoil in markets as investors reacted to political uncertainty. Polls have shown the far right and a new leftwing alliance called the Nouveau Front Populaire (NFP) were running in first and second place ahead of the two-round vote, with both promising a break with the business-friendly stance of Macron.

Spreads on French government debt relative to Germany’s — a key measure of political risk — had their sharpest rise since the Eurozone debt crisis more than a decade ago.

But Carmignac said the market reaction demonstrated the RN’s lack of room for extra borrowing, with public debt at around 110 per cent of GDP. “You saw what happened to the spreads . . . the markets will be keeping the RN on a very tight leash,” he told the FT.

The 76-year-old’s comments are the latest signs that France’s business and financial elite is hoping that populists on the right and left will prove to be less radical once in office. French executives have been privately courting the RN, which has not yet issued a complete economic programme but said it wants to cut value added tax on energy and petrol and potentially lower the retirement age.

Meanwhile, Stéphane Boujnah, the French head of Europe’s biggest stock exchange, this week appealed for business leaders to “keep calm” about the election.

Carmignac said that the likelihood of Macron having to share power with a government formed by rival parties — known as cohabitation — would lead to “a stalemate situation” in French politics.

“It’s going to be an interesting game of the cat and mouse,” he said. “Policy-wise, pretty indecisive, kind of messy, not much being done, and not much happening.”

Carmignac expects the RN to fail to secure an outright parliamentary majority, further limiting the party’s ability to pursue policies that upend markets. Party chief Jordan Bardella, who would be prime minister if the RN did manage to win 289 of the 577 seat, has said he would not accept the job otherwise since he would not be able to apply its programme and would be vulnerable to a no-confidence vote.

“They’ll be tempted to show that they are a reliable governmental party trying to make sure that they win the elections that really count, which is the presidential elections in three years,” said Carmignac.

The fund manager also predicted that the unity of the leftwing NFP may not last long beyond the election as its far-left component “do what they can to create havoc” and “moderate socialists realise that they can actually sail on their own”. The NFP includes the far-left party known as La France Insoumise (LFI), centre-left Socialists, Greens and Communists.

Despite being relatively sanguine about the fallout from the election, Carmignac worries that legislative gridlock in France — along with a weakened Germany and the prospect of Donald Trump’s re-election as US president — will leave Europe struggling to present a “decisive front against Russia in Ukraine, and against the Chinese”.

Carmignac made his name by taking a contrarian bet in 2008 after identifying the fragility of the US banking sector and positioning his fund defensively, allowing it to avoid losses when markets crashed and its benchmark index lost 12 percentage points.

In recent years, Paris-based Carmignac’s assets have dropped from €57bn at their peak in 2017 to more than €30bn. Its founder stepped back from day-to-day fund management several years ago.