A murky way forward for French politics

The second round of the French snap elections resulted in a hung parliament, as we expected. Even though the Nouveau Front Populaire (NFP), an alliance of left-wing parties recorded a surprisingly strong performance and finished in first place, we think France is still set for policy paralysis, as an Assembly split in 3 large blocs will be unable to underpin a stable government.

What you will learn:

• The way ahead is currently very blurry, with outcomes ranging from a minority left-wing government to a grand coalition of moderate parties, or even a technocratic government. No matter what the eventual compromise is, political instability will remain a feature of French politics for the foreseeable future.
• The NFP won a relative majority on the back of a radical-left platform, but its programme has virtually no chance of being implemented given the lack of majority. This was evident in the muted reaction of financial markets to the results of the second round.
• A divided Assembly will find it hard to agree on politically difficult spending cuts, resulting in a durably deteriorated fiscal outlook, which will keep spreads at a higher level than before and test the EU’s new fiscal rules. The impact of political developments on growth will be more limited, as lower confidence and higher rates will be offset by a more expansionary fiscal policy.