French elections trigger euro drop after left-wing victory

The euro fell 0.3% in early Asian trading on Sunday after the French game New Popular Front (NFP) will rise with victory in the country’s legislative elections.

According to an Ipsos poll, the far-left party NFP won between 177 and 192 seats in the National Assemblyout of a total of 577.

For its part, President Macron’s party would obtain between 152 and 158 seatsThe result is a humiliating defeat for the Ensemble group, which has caused the resignation of Prime Minister Gabriel Attal.

Although the markets had recently risen on the belief that the far-right National Rally (AN) would not achieve an absolute majority in Franceit seems that uncertainty will once again take hold. The far-right National Rally obtained 143, although investors now have new faces to worry about.

“It seems that the parties opposed to the extreme right have obtained a great support“Simon Harvey, head of currency research at Monex Europe, was quoted as saying by Reuters.

“But fundamentally, from a market perspective, there is no difference in the outcome. There is really going to be a gap in France’s legislative capacity“.

Markets hate uncertaintyand the French political landscape is far from stable. With the likelihood of a Parliament undecided and little clarity as to what form of coalition might be possible, some form of minority government or “cohabitation” – where power is shared between a prime minister and a president from opposing parties – seems likely.

This could portend a legislative blockage. Moreover, the left-wing alliance New Popular Front (NFP) is not known for its fiscal prudence. This summer already, the leader Jean-Luc Mélenchon He said that decrees could be published for repeal Macron’s pension reform and raise France’s minimum wage.

He also wants to apply a 10% pay rise for civil servants, Increase housing aid by 10% and Hire more teachers and health personnelThe additional measures will involve a gradual increase in public spending of 150 billion euros. The party says this will be financed by higher taxes on the wealthy.

The coalition’s confidence in public spending has scared the marketsespecially given the current health of French finances.

However, Mélenchon’s party France Insoumise only represents a part – although the largest – of the NFPIt remains to be seen whether the alliance will hold together now that it has displaced the National Rally into third place in the election. Moreover, any attempt to form a government could bypass France Insoumise.

The country hit the headlines in March by announcing deficit figures for 2023, with public accounts showing a fiscal deficit of 5.5% of economic productionThis figure is higher than the previous year’s 4.8% and significantly higher than the Government’s target of 4.9%.

He Macron’s government had pledged to reduce the deficit to below 3% of national output by 2027, which would allow it to stay in line with EU targets. Alexandre Ouizille, an official from the New Popular Front, said before Sunday’s vote that his party would not increase the deficit“We will not reduce it,” he added, however.

Operations with French bonds and shares will begin this week in Europe. Investors will be closely watching events in Paris to see how this new political era could affect the fiscal stability.