The French legislative election delivered a surprise victory for the left-wing New Popular Front (NFP). But it has fallen well short of a majority, and the parliament is roughly evenly split between the left, the far-right, and Macron’s centrists. 

The three most likely options for a new government are: an NFP-dominated minority; a ‘rainbow’ coalition covering the centre and parts of the left; and a technocratic caretaker government in the event other options fail. France may see a few of these options over coming months given the hung parliament. 

In particular, the NFP probably isn’t a durable base for government, given its internal divides. The bloc hasn’t put forward a candidate for prime minister, and there is a high probability the alliance fractures. 

Any coalition or minority administration involving even the moderate left is likely to seek increased public spending and taxation, even if the highly expansive fiscal platform put forward during the campaign isn’t enacted. Certainly, a divided parliament won’t be able to deliver the fiscal consolidation required by the EU Excessive Deficit Procedure. 

Financial markets initially took the news of a hung parliament and prospect of policy stasis as good news, however most recently equity prices have been a bit weaker. And we continue to think the headwinds to the French economy and fiscal position are structural, going beyond the event risk associated with this election. 

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