France on the verge of a political standstill?

The first round of voting will begin this weekend on 30 June, before the second round on 7 July. There’s plenty of buzz surrounding the French election this time around. So, let’s take a look at what are the possible outcomes and how that might impact markets.

It all started with the European parliamentary election at the start of this month. That saw Marine Le Pen’s far-right party trump French president Emmanuel Macron’s Renaissance party, leading to Macron calling for a snap election. While the overriding sentiment isn’t just contained to France, the fact that we’re seeing such political uncertainty in Europe’s second largest economy is triggering nerves in markets.

The French parliamentary election here is going to end up being an interesting one regardless.

Given the prevailing sentiment among the public, Macron’s Renaissance party is not expected to win an absolute majority. This outcome would be the most surprising one if it were to play out that way. If so, Macron can easily appoint Gabriel Attal as his prime minister once again. Easy-peasy, French stocks will rally back alongside the euro. But again, it’s quite implausible to imagine at this stage.

The biggest worry now is that we might just see no party winning a majority. As such, there will be no ruling government formed immediately and this is a rather unfamiliar situation for France. One can argue it is rather unprecedented in modern politics and there would be a political standstill within the country.

That is because new legislative elections cannot be called for at least another year to resolve the situation.

If this were to occur, we might see Macron start to come around to the idea of resigning to allow for the process to play out quicker. So far, he has vehemently ruled out such an option. But when the time comes, we’ll see.

The other plausible outcome is that Le Pen’s National Rally party secures an absolute majority. That will make things rather awkward for Macron, as he will be tasked to choose the next prime minister from the party itself. Given the circumstances, he will be left with little choice but to appoint Jordan Bardella to head the government.

In this instance, Macron will still be in charge of things involving foreign politics, treaties, and what not. However, Le Pen’s faction will be the ones in charge when it comes to domestic policies instead.

Things are running smoothly now as Macron is the figurehead and also helps to run the show when it comes to EU matters. It will be a whole different ball game though if this outcome plays out. Expect there to be much tension involving French politics. And in return, that won’t bode too well for domestic assets and also the euro in general.

On the currency, the fear is that this is just the start of a bigger wave that is about to sweep across the region.

This article was written by Justin Low at www.forexlive.com.