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 France’s snap legislative elections might provide everything but clarity — and have financial ripple effects.

Macron’s announcement caused immediate financial turmoil. It 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.

Both the RN’s and NFP’s post-election plans have investors nervous

These financial shockwaves started to abate after a few days. But investors have stayed on edge ever since.

Especially as the RN and the newly founded left-wing alliance New Popular Front (NFP) started detailing their post-election plans. The NFP includes the far-left movement France Unbowed, the Socialist Party, the Greens and the Communist Party.

The RN and NFP came first and second, respectively, in the first round of voting on June 30, just like polls had predicted. The RN will probably come out on top in the upcoming run-off. Macron’s Ensemble alliance is likely to land a distant third place.

Both frontrunners are 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 both sides’ spendthrift agenda, investors seem to prefer the RN’s economic platform, Crevel says.

“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.

The RN plans to exit the EU electricity market and reduce France’s contribution to the EU budget. The party also aims to 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, concurs the RN’s election platform acts less as a deterrent 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 would merely require a negotiation with the EU,” he told DW.

“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 — couldn’t disagree more. He’s an economic researcher at the University Lumiere Lyon-2 and Sciences Po Paris.

“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,” he said to DW.

“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

The results of the first round of voting, though, seem to have made the RN the center of investors’ worries. The far-right now looks likely to get an absolute or a relative majority in parliament. The NFP could, at best, be part of a national unity government which would prevent it from implementing its most drastic measures.

“We don’t have a track record to go by, but an RN-led government would likely go on a spending spree which would make a difficult year for the European Commission even more complicated,” Maria Demertzis, senior fellow at Brussels-based think tank Bruegel and professor of economics at the Florence School of Transnational Governance in Italy, told DW.

“This year, the EU is implementing a new fiscal framework and so countries under the excessive deficit procedure will have to submit concrete plans to bring down that deficit — putting such new rules in place is tricky in normal times with an RN-led government likely to complicate things further,” she explained.

Mujtaba Rahman, managing director Europe at New York-based political risk consultancy Eurasia Group, believes any of the expected outcomes will cause political and financial instability.

“If the RN gets a relative majority, 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.

“And an RN-led government would put France on a collision course with Europe, as 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,” he added.

“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 warned.

Edited by: Ashutosh Pandey