Snap Elections in France: What’s at Stake for the Economy and Financial Markets?

In the aftermath of the first round of the French parliamentary elections, Marine Le Pen, the presidential candidate of Front National, spoke to her followers. The far-right nationalist National Rally (RN) led by Le Pen has seen a surge in support in the final voter surveys before the election. The balance of power in the National Assembly will be determined by this election, which is being conducted in two rounds.

President Emmanuel Macron called for these elections after his centrist party suffered a defeat to the far-right in the European Parliament elections a few weeks ago. Financial markets were rattled by Macron’s decision and there are concerns about France’s fiscal challenges. Investors worry that a victory for either the RN or leftist New Popular Front (NFP) alliance could pose a threat to the French economy, which is Europe’s second-largest after Germany.

German businesses are closely monitoring these snap elections as they fear that sharp increases in government spending could result from a win for either side and lead to market instability. Analysts have highlighted that undoing business-friendly reforms implemented during Macron’s presidency and potential tax hikes could strain an already stretched state budget of France even further if either side wins.