French elections – a review of the first round

The first round of the French parliamentary elections took place on 30 June, and the results are in. Giovanni Zanni, Chief Euro Area Economist, discusses the result and what could happen in the second round on 7 July.

03 Jul 2024 . 3 mins

President Emmanuel Macron called the snap elections following the far-right Rassemblement National’s (RN) unexpectedly strong showing in the European elections, but there was little surprise in this set of results. RN was well in the lead with 33% of the votes, followed by the left-wing New Popular Front (NPF) coalition on 28% and President Macron’s Ensemble in third place at 21%.

First-round results suggest a hung parliament is likeliest

This ranking is unlikely to change in the second round of voting on Sunday, but given the nature of the French voting system, who wins power is difficult to predict. The fragmented vote has resulted in three rather than just two candidates making it through to the second round in more than 300 constituencies. Admittedly this initial figure dropped significantly on 2 July as candidates in third place withdrew from the race in order to allow the concentration of the vote against the far right - what the French call the “Front Républicain”.

RN still is the only party that could conceivably achieve an overall majority or come close to one – though it is now seen as increasingly unlikely: first, because most polling companies already expected the party to fall short of the 289 seats needed for an overall majority on the back of first round results; second, because of the tactical withdrawals that have now taken place (in turn this means it is de facto impossible that the NPF will get close to a majority).

RN likely to be the largest party in parliament after the second round

It is still likely, however, that the RN will get the biggest party in parliament, probably with around 250 seats.

Some uncertainties remain, though. RN will argue in the coming days that other forces are trying to keep it out of power, and if this message resonates it may win extra support from centre-right voters or there could be large-scale abstentions from those who voted for Ensemble in the first round. Ultimately, the vote for the parliament is a collection of individual contests, and local specificities will play an important role. But as it stands, a hung parliament looks the likeliest outcome.

If this is how it pans out, there will need to be some kind of alliance between Ensemble and the left and / or between RN and the Republicans, with new elections in (but not before) 12 months likely: the French Constitution states that there must be at least a year between parliamentary elections. French politics would remain uncertain for some time, with all eyes turning to the most important political prize in France – the presidency, the vote for which is due in 2027.

What does the French election mean for the markets?

In the immediate aftermath of the first-round results French government bond (OAT) spreads over German Bunds fell as the market was heartened by tail risks, in that an absolute majority for RN or any kind of majority for the NPF seem to have receded.

In our base case of a hung parliament, we expect 10-year OAT-Bund spreads to tighten from their current level of 73bp to 65-60bp. Overall, though, the elections have shaken up a market that was in our view too optimistic. Even though the country has been in focus for the wrong reasons this year, with upwards revisions to its deficit projections leading to rating downgrades, OAT spreads had tightened until before the parliamentary dissolution – driven by positive risk sentiment rather than France’s strong fundamentals. We don’t expect 10-year OAT-Bund spreads to revert to their pre-election levels (around 45bp) in the near term.

Markets are likely to be volatile ahead of the second round on Sunday, especially given there’s still a small chance that RN will come close to an absolute majority.

This article has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes. It is indicative only and is not binding. Other than as indicated, this article has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this article, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this article. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this article and any issues that are of concern to you.

This article does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. NatWest Markets and each of its respective affiliates accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.

NatWest Markets Plc. Incorporated and registered in Scotland No. 90312 with limited liability. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. NatWest Markets N.V. is incorporated with limited liability in The Netherlands, authorised and supervised by De Nederlandsche Bank, the European Central Bank and the Autoriteit Financiële Markten. It has its seat at Amsterdam, The Netherlands, and is registered in the Commercial Register under number 33002587. Registered Office: Claude Debussylaan 94, Amsterdam, The Netherlands. NatWest Markets Plc is, in certain jurisdictions, an authorised agent of NatWest Markets N.V. and NatWest Markets N.V. is, in certain jurisdictions, an authorised agent of NatWest Markets Plc. NatWest Markets Securities Japan Limited [Kanto Financial Bureau (Kin-sho) No. 202] is authorised and regulated by the Japan Financial Services Agency. Securities business in the United States is conducted through NatWest Markets Securities Inc., a FINRA registered broker-dealer (http://www.finra.org), a SIPC member (www.sipc.org) and a wholly owned indirect subsidiary of NatWest Markets Plc.

French elections – a review of the first round

First-round results suggest a hung parliament is likeliest

RN likely to be the largest party in parliament after the second round

What does the French election mean for the markets?

Related articles