Markets hit by Macron gamble on French elections
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French markets fell on Monday after President Emmanuel Macron called snap parliamentary elections in a high-stakes gamble to foil advances by the far right in his country and across the EU.
France’s Cac 40 stock index slid 1.4 per cent and bonds were hit as investors reacted to the prospect of a government led by Marine Le Pen’s far-right movement, which trounced Macron’s centrist alliance in the weekend’s elections to the European parliament.
French banks, which hold substantial government debt and could be targeted for windfall taxes, were among the worst performers amid market concerns about a borrowing spree by the far right.
Macron said an early French legislative election — the two round-vote he scheduled for June 30 and July 7 — was needed to break the political “fever” afflicting the country and to clarify its future direction.
“This will be the most consequential parliamentary election for France and for the French in the history of the Fifth Republic,” finance minister Bruno Le Maire told RTL radio.
The euro fell 0.4 per cent against the US dollar to $1.0755, amid EU-wide reverberations from the bloc’s elections and Macron’s decision.
Hard-right parties secured around a quarter of the seats in the European parliament, up from around a fifth.
France’s snap poll brings forward a potentially defining confrontation with the far right that had been looming on the horizon, with Macron due to stand down in 2027 and Le Pen on course to succeed him.
If her Rassemblement National were to form a government, its protectionist big-spending agenda could put Paris into conflict with Brussels and alarm investors.
A strong showing for RN in the legislative poll could trigger “an economic disaster” for France, said Frederik Ducrozet, head of macroeconomic research at Pictet Wealth Management.
“A lot of Le Pen’s policies would be inflationary,” he added, describing RN’s possible entry into government as “a big risk to businesses [and] to [France’s credit] rating”.
After Macron’s decision to call an election, investors sold French government debt, with the yield on the benchmark 10-year bond, which moves inversely to price, up 0.13 percentage points to 3.24 per cent.
On the stock exchange, BNP Paribas was down 4.8 per cent, Société Générale fell 7.5 per cent and Crédit Agricole dropped 3.6 per cent. Insurer Axa fell 2.6 per cent while asset manager Amundi was down 2.1 per cent.
“There’s a ‘shoot first, think later’ mentality in markets . . . but investors have to price a higher risk premium,” said Emmanuel Cau, head of European equity strategy at Barclays.
The dissolution is an extraordinary gamble by Macron, who has already lost his parliamentary majority after winning a second term as president two years ago.
His alliance could be crushed, which would force him to appoint a prime minister from another party, leaving him with little power over domestic affairs with three years left as head of state.
The RN secured 31.4 per cent of the vote in Sunday’s EU poll, compared with 14.6 per cent for the French president’s centrist alliance.
Macron only narrowly avoided a humiliating third place behind the centre left, which took 13.9 per cent of the vote.
On Monday the country’s mainstream centre right and centre left rejected his offer to form an alliance ahead of the elections.
In Germany, the ruling coalition was also routed in Sunday’s EU poll, with Chancellor Olaf Scholz rejecting calls for early polls in his own country as well.
All three partners in the Berlin coalition were overtaken by the far-right Alternative for Germany (AfD), which came in second behind the conservative CDU-CSU opposition.
Ultraconservative and nationalist parties also won or made significant gains in Austria, Cyprus, Greece and the Netherlands.
Russia hailed the far-right parties’ gain across the continent. Kremlin spokesperson Dmitry Peskov said they would soon “step on the heels” of Ukraine’s supporters in the European parliament.
Additional reporting by Adrienne Klasa
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