On the evening of June 9, President Emmanuel Macron seemed adamant that dissolving France's lower house of parliament, the National Assembly, was the right thing to do.
His party had just suffered a crushing defeat in the European parliamentary elections with former presidential candidate Marine Le Pen's far-right National Rally (RN) skyrocketing in the ballot.
"[Today's] challenges require clarity in our debates, ambitions for our country and respect for each of our citizens — that's why I've decided […] to give you again the choice of our parliamentary future," Macron said from his office in the Elysee Palace.
But the results of France's snap legislative elections have now provided everything but clarity.
The country's leftist alliance New Popular Front (NFP) is now set to become the biggest group in a new parliament, after beating the resurgent RN into third place. The NFP is still short of an overall majority. Macron's centrist alliance held up better than expected and is set to end up in second place, albeit with dozens fewer members of parliament.
Macron's snap election came as a surprise to most people, including investors, recalls Philippe Crevel, economist and head of Paris-based Cercle de L'Epargne think tank.
"France's stock market index CAC 40 went down by about 8% within a week and interest rates for French public debt went up," he told DW.
On Monday, as investors digested the runoff results, the CAC opened 0.4% lower but quickly recovered ground.
NFP's post-election plans have investors nervous
Despite the prospect of weeks of political uncertainty, the newly founded NFP has already started detailing its post-election plans. The alliance includes the far-left movement France Unbowed, the Socialist Party, the Greens and the Communist Party.
The new largest group in the National Assembly is promising generous measures to boost voters' purchasing power. They are planning on withdrawing Macron's 2023 controversial pension reform that raised the minimum retirement age from 62 to 64 years. The NFP intends to reduce that threshold to 60 years.
"It's surreal — France faces a financially dire situation, and yet, all the parties, including Macron's, are trying to lure voters by promising to lavish money on them," Crevel said. "Politicians have been doing this for the past 40 years, but now we're close to the precipice."
France's public debt in 2023 stood at about 110% of GDP with its budget deficit amounting to 5.5%. The European Union recently opened an excessive deficit procedure against France, as the EU's Stability and Growth Pact only allows for a public debt of 60% of GDP and a 3% budget deficit.
Does the market prefer the RN?
But despite a spendthrift agenda from the NFP and Le Pen's RN, investors seem to prefer the far-right party's economic platform, Crevel said, going into Sunday's runoff.
"The NFP are anti-capitalist and anti-European, as they want to leave the Stability and Growth Pact and international free trade agreements, whereas the RN is no longer openly displaying anti-EU views — although their platform is incompatible with European rules," Crevel said.
If elected, the RN had planned to exit the EU electricity market and reduce France's contribution to the EU budget. The party also said it would introduce systematic immigration controls at national borders, which would go against border-free Schengen area rules.
Christopher Dembik, senior investment advisor at Pictet Asset Management France, concurred the RN's election platform was less of a concern to investors than the NFP's.
"The financial world is more alarmed by the NFP's showcased opposition to EU rules than by the RN's plans to, for example, reduce VAT on electricity, gas and fuel from currently 20% to 5.5%," which he would have merely required a negotiation with the EU."
"Plus, the far right has pledged to audit public finances, which indicates their intent to bring down France's debt," Dembik added.
But Michael Zemmour — unrelated to controversial far-right former presidential candidate Eric Zemmour — will likely be relieved at the RN coming third in the runoff.
"There's this fake impression that the NFP would ruin the French economy with their Keynesian program focused on spending, although the RN is electioneering with tax cuts financed through xenophobic measures such as taking away health care from foreigners," the economic researcher at the University Lumiere Lyon-2 and Sciences Po Paris told DW ahead of the vote.
"Apart from the fact that this is morally reprehensible, the RN keeps changing its mind by modifying for example the date of a supposed withdrawal of Macron's pension reform — it's impossible to assess their economic platform seriously," he said.
"It's shocking that the business world seems to prefer xenophobia to redistribution — also arguing that the RN would tone down their policies like Italy's current far-right PM Giorgia Meloni did once in power," he added.
More instability could be looming
Following Sunday evening's results, the NFP could try to form a minority government or be part of a coalition, which would likely prevent the leftist alliance from implementing its most drastic measures.
Mujtaba Rahman, managing director Europe at New York-based political risk consultancy Eurasia Group, believes the surprise outcome will cause political and financial instability.
"France is looking at a parliamentary deadlock with two large ideological blocks and the center squeezed in the middle with an enfeebled, delegitimized president, a caretaker government with no capacity to deliver and a significant risk of civil strife," he told DW.
Rahman had warned ahead of the second round that an RN-led government would put France on a collision course with Europe.
"Their policies, such as the national preference, which would take away fundamental rights from foreigners, don't sit well with the EU's level playing field and the rules governing the single market."
"What's more, their fiscally expansive program could incite other populists such as Meloni to do the same, which could call into question the stability of the rest of the euro area," Rahman said.
