French elections' aftermath: Instability looms as markets react

Marine Le Pen was defeated, but that does not mean the situation in France has stabilised. The country faces the risk of becoming ungovernable. Markets have already reacted to the election results. The value of the euro has decreased, and investors are looking with uncertainty at the demands of the victorious far-left.

The unexpected victory of the "front against Le Pen" offers only partial satisfaction. The third position of the far-right and Russia-linked party Rassemblement National (RN), led by the charismatic Jordan Bardella, removes the risk of changes in the country's foreign policy but creates a challenging puzzle in the new National Assembly.

Another radical wing wins, this time from the other side of the political and ideological spectrum - the left-wing New People's Front coalition. However, one of the leaders of the French New People's Front, Raphael Glucksmann, pointed out that although his bloc won the parliamentary elections, it does not have an absolute majority.

In the second position is the group from which President Emmanuel Macron originates.

None of the groups is strong enough to govern alone, which requires 289 seats. Commentators emphasise that forming a coalition government will not be easy and that predicting its shape will be difficult.

In an interview with PAP, Prof. Aleksander Smolar, political scientist and former president of the Batory Foundation, reminds us that the left is very divided. "And while the social-democratic part of the left can co-govern with centrists and democratic rightists - this is the part of the left led to the European elections by Raphael Glucksmann - the Unsubmissive France of Jean-Luc Mélenchon are radicals with whom neither centrists nor the democratic right will want to form a government," he explained.

Markets have already reacted to the country's chaos. As Bloomberg reports, futures on French bonds fell, the euro fell, and European stock futures rose slightly.

As the agency recalls, the left's commitment to broad fiscal policy easing has raised concerns about France's tense finances and may increase tensions with the European Union.

Investors are also watching the victorious party closely. Bloomberg mentions that political uncertainty and pressure on French treasury bonds pose upcoming risks for banks as they are the primary holders of French debt. The left also talked about raising mandatory capital buffers for banks and transaction taxes and presented plans for higher taxes on wealth, dividends, and share buybacks, as the agency notices.