France’s Parliamentary Elections Deliver Divides

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France’s legislative elections delivered a major shift Sunday, but not the one political analysts expected. Entering the weekend’s second-round vote, most anticipated President Emmanuel Macron’s Together! movement would lose its majority, and they did. But the biggest beneficiary of Macron’s collapse wasn’t the leftist alliance known as Nupes (short for New Popular Union), which won the second-most seats but badly underperformed polling projections. Rather, Marine Le Pen’s National Rally—a nationalist party with a leftist economic platform—surprised observers by jumping from 8 seats to 89.^[i] Le Pen’s ascendance as the second-largest single party in the National Assembly has hogged headlines since, with most observers seeing chaos and deadlock dooming Macron’s reform agenda. In our view, people are merely putting a colorful, hyperbolic spin on traditional gridlock, which stocks should be just fine with once the uncertainty weighing on stocks globally starts clearing.

It takes 289 seats to win a majority in the 577-seat National Assembly, and most polls projected Macron’s bloc would get close. But in the end, they got just 245, followed by 131 for the Nupes, then the National Rally’s 89 and finally the center-right Republicans’ 61.^[ii] But even this is more fragmented than it looks, as Nupes isn’t a party—it is an alliance of the green, center-left and far-left parties. The four participating parties agreed to field only one candidate in each seat, with candidates running under the alliance’s umbrella instead of their actual party. That alliance is already crumbling, with the participating parties shying away from leftist leader Jean-Luc Mélenchon’s desire to make the bloc a formal coalition in the assembly, as doing so could risk wiping out their parties’ identities and subsuming them into Mélenchon’s France Unbowed, which won the most seats among the four. That is a particular anathema to the center-left Socialist Party, which has been fighting hard against its own obsolescence since 2017, when Socialist presidential incumbent François Hollande didn’t even bother seeking re-election after his popularity plunged. So, most likely we will see Nupes splinter into four, with France Unbowed reportedly taking about 70 seats, followed by the Socialists, Greens and Communists.

That is consequential for a few reasons. One, it fragments the leftist opposition, theoretically freeing up the Socialists to vote with Macron’s party on issues they have in common. Two, it leaves the National Rally firmly in second. Traditionally, the second-largest party in the National Assembly gets to chair the finance commission, a post that would theoretically go to Nupes if they form an official bloc. But Nupes’ splintering looks likely to deliver the post to Le Pen’s party. Should that happen, it will give the National Rally’s economic agenda a bigger platform, but platform and policy dictation are two very different things. Le Pen’s economic wish list may overlap to an extent with Mélenchon’s (both favor higher public spending, bigger deficits and more state control in certain economic sectors, and both oppose Macron’s proposed pension reforms), but their combined power is still less than 289 seats. They may be a noisy opposition, but they are the opposition nonetheless.

As for where this leaves Macron, “gridlocked” pretty much sums it up. The Republicans may have numerous policy overlaps with Together!, especially on the economic front, but party leader Christian Jacob said he has no plans to join a formal coalition. Therefore, Macron’s bloc will likely have to form a minority government and do a lot of horse trading to win a confidence vote for its cabinet and prime minister. If negotiations don’t bear fruit, Macron has the power to dissolve the assembly and call a snap election, but voters’ apparent frustration renders that unlikely at the moment. It seems more probable that the other parties will use their leverage to the max, gain as many concessions as they can, and then move on. From there, presuming a cabinet gets confirmed, actual governing will likely mean reaching out to the Republicans for support on some measures and the Socialists or even the Greens on others, especially with nuclear power issues front and center right now. Some proposals might squeak through, some will probably get watered down, and some will probably die on the vine. More urgent items, like addressing the issues causing EDF’s nuclear power facilities to run well below capacity—risking rolling blackouts later this year—probably have a higher likelihood of passing than more contentious items like pension reform.

Depending on your personal preferences and views of France’s economic competitiveness, you might find this to be bad or good news. But even well-intended reforms risk creating winners and losers, with often unforeseen downstream consequences. When stocks are familiar with the status quo, even if people think that status quo isn’t great, it is often a better the devil you know-type situation. With change comes uncertainty, and that uncertainty can weigh on stocks. A gridlocked government, however noisy, reduces that uncertainty, which enables more risk-taking and investment. The benefits may not be immediately clear while global stocks remain mired in a very tough stretch, but they should materialize as time rolls on.