European financial markets reacted favorably to the results of the first round of French parliamentary elections, easing concerns about unbridled government spending in Paris.
Moreover, weaker than expected German inflation increased optimism about further interest rate cuts by the European Central Bank, lifting risk sentiment.
what happened: The far-right National Union Party Marine Le Pen and Jordan Bardellawon the first round of hastily called parliamentary elections with 33% of the vote.
Now read: Trump team hints at intention to pull US out of Paris climate accord again
The result was significant, but not as strong as some polls had predicted, as the party did not win an absolute majority in the first round. The New Popular Front, a coalition of left-wing parties, came in second with 28% of the vote.
president Emmanuel MacronThe centrist coalition came in third with 20%.
The result is seen as a blow to Macron, who has been president since 2017. He dissolved the French Parliament on June 9 following the European Parliament elections. A second round of voting is scheduled for Sunday, July 7.
The final outcome remains unclear, with a National Rally winning a majority possible but not the most likely scenario, and talks are underway between centre-right and left-wing parties to prevent the far-right from winning a majority in the second round.
prime minister Gabriel Attal Attal stressed the “moral obligation” to prevent the far-right from winning an absolute majority. He suggested that candidates from Macron’s coalition should withdraw from the second round of voting. Macron called for a “broad, clearly democratic and republican mobilization” that would unite left, center and conservatives to counter the far-right.
Why is this important: Political and economic analysts see a Rally National majority in the French National Assembly as a major risk to France’s finances, which have a debt of around 3 trillion euros, more than 110% of gross domestic product, and a deficit of 154 billion euros, or 5.5% of economic output.
The European Union (EU) has placed France under the Excessive Deficit Procedure (EDP) in order to curb spending by countries with EU deficits exceeding 3% of GDP.
Policies proposed by the far right often involve increased spending and reduced fiscal revenues, which could worsen France’s debt situation and damage relations with the EU. Marine Le Pen’s 28-year-old successor, Jordan Bardella, has campaigned on policies such as lowering the retirement age, cutting energy taxes and indexing pensions to inflation. A suspended parliament could hinder the National Rally’s ability to implement these policies, restraining French spending and avoiding market upheaval.
In other news, preliminary German inflation data for June showed a 2.2% year-on-year increase, down from an earlier 2.3% increase and below the 2.3% forecast, raising the possibility of further interest rate cuts by the ECB this year.
Market reaction: The Euro STOXX 50 Index is iShares MSCI Eurozone ETF (NYSE:EZU) was up 1.1% by 9:40 a.m. New York time. The French bank was Societe Generale, Credit Agricoleand BNP Paribasrose 4-5 percent, while Italy’s UniCredit also rose 4 percent.
The French CAC 40 index is iShares MSCI France Index Fund (NYSE:EWQ) rose about 1.8%, leading other regional indexes. The euro also rose, climbing 0.4% against the US dollar to above 1.0750, on track for a third consecutive positive session.
Read now:
- Biden’s family supports him after Trump debate defeat
Image: Pixabay
