France Elections- Expected Election results and Market reactions

France Elections is here!

The France snap elections is happening in two rounds. The first round took place on June 30th and the second round will happen on July 7th. France has ~49 Mn registered voters voting for 577 constituency seats in the National Assembly, the lower house of the Parliament. This is the current hot topic in the global markets and would help us to know learn more about.

This article will cover the following aspects:

1.?????? Why is it relevant for us to understand France elections as investors?

2.?????? What are some of the unique aspects of France elections?

3.?????? The different election result scenarios and the expected impact

Happy reading! ??

Why is France elections relevant for us to understand as investors?

France is one of the founding members of the European Union (EU), playing a major role in EU’s objective of maintaining peace and stability among the member countries. Out of the 27 member countries in the EU, France ranks 11th in terms of GDP and contributes to about ~18% of EU’s overall GDP.

Who will come to power in France will define its relationship with other members in the EU- and ?hence European Equity, bond and FX markets would be important to watch in light of France elections. Nonetheless, it is important to note that France has its own issues with a whopping 123% Debt to GDP ratio and a fiscal deficit of 5.5% among others. The wrong party coming into power will worsen things and cause more volatility in markets across asset classes. The same logic applies to the fact that France is one of the founding members of NATO as well.

Let’s understand the candidates of the France elections.

The New Popular Front (Left), Macron’s RE (Centrist), LR (Center-Right to Right wing) and National Rally (Right wing) are competing in the elections. Though RN won the first round of elections last weekend with a vote rate of >30%, looks like chances have slimmed for them to win the second round and secure their seats in the Parliament.

Why is the Snap elections happening?

We know that a snap election is one that is called earlier than the one that is scheduled. Given that the last France held its election was in 2022, the next scheduled election was due only in 2027. But French President Macron called for a snap election. This is because Macron’s Centrist Party lost to the RN Party in the EU elections that happened between June 6th-9th this year, and he wanted to take a political gamble with a snap election and give his party a chance to continue office.

There are some unique aspects to understand about this election:

1.?????? The two-round election: In constituents where no candidate wins an outright majority in the first round, the top two candidates along with any other candidate with more than 12.5% of total number of registered voters move to a second round. And it goes without saying that whoever wins the second round wins the seat.

2.?????? The ‘cohabitation’ plan: A cohabitation plan is when the President and the Prime Minister come together from different political parties. In France, three times in the past there have been cohabitations. This is when the Presidential camp fails to retain majority, and if an opposition party wins an absolute majority, the President will be forced to appoint a Prime Minister from the Party that won the majority. It is important to note that even in this case, President will hold the highest office in France followed by the PM. He appoints the Prime Minister and chairs the Council of Ministers. However, the President can only appoint the PM but does not have the power to dismiss the PM.

It was speculated that if far right comes to power, the following changes will happen with respect to France’s relations to EU. Though ‘Frexit’ scenario is not anticipated anymore, there are definitely certain policy changes that will happen in France depending on who comes to power, and these changes will not adhere to how the EU members function in accordance to the EU policies.

·???????? There could be stricter immigration reforms restricting freedom of movement in the Schengen area. The revised rules will be prioritizing French Law over the European Law

·???????? Pension reforms and unemployment benefits that is now provided by Macron’s policies might be revoked

·???????? France will apply for a 2 Bn Euro rebate on the overall EU budget, affecting France’s commitment to the EU

If Macron comes to power again, it is expected that a Cohabitation government will be formed with the Left (Centrist President + Leftist PM) which is a more ideal situation to be for France, for better policy making, better relations with the EU and NATO and in turn lower market volatility next week.

Who do you think would win the France elections?

Feel free to share any feedback! ??