French snap elections: Macron takes a gamble

The outcome of the European elections delivered a clear message to French President Emmanuel Macron, leaving no room for interpretation. Marine Le Pen’s Rassemblement National (RN), the largest opposition party in France, garnered more than double the votes (31.4% vs. 14.6%) compared to Macron’s Renaissance party. This resounding defeat, however, did not come as a complete surprise. Macron’s domestic popularity took a significant hit following the implementation of the highly unpopular (yet necessary) pension reforms in early 2023.

Subsequently, Macron made several attempts to enhance his government’s popularity. Toward the end of last year, he introduced a controversial immigration law, which was widely perceived as a triumph for the RN’s ideology. He also replaced his prime minister, Élisabeth Borne, with the young and charismatic Gabriel Attal, but these efforts proved fruitless. Faced with these challenges, Macron has resorted to more drastic measures.

Macron’s strategy appears to be based on the assumption that the opposition is unlikely to secure an absolute majority or find the necessary support. Macron’s party is thus likely to stay in power. However, this course of action carries the inherent risk of further weakening Macron’s minority party in parliament, jeopardizing the short-term governance of the country. Nevertheless, Macron is willing to take this risk to diminish the chances of Le Pen assuming office in the Élysée in 2027.

Elections for a new parliament will be held on June 30 and July 7, as the parliament is elected by a two-round system in single-member constituencies. This two-round system usually favors centrist parties. As an example, in 2022, RN only secured 17.3% despite Le Pen’s strong performance at the presidential level.

Let’s delve into the potential outcomes of these elections, considering three distinct scenarios. The first scenario entails a decisive triumph for Renaissance, while the second scenario involves a modest reshuffling of seats. Lastly, the third scenario envisions a resounding victory for the RN. We analyze each scenario in detail, below.

A victory for Renaissance

Despite Macron’s intention to strengthen his position through these elections, the current polls do not indicate a convincing victory in his favor. However, if Macron's coalition were to secure a more solid footing, it would be a game-changing outcome. Presently, Macron’s party holds a minority in parliament, relying on support from opposition parties to advance his policy agenda. With a majority, Macron would likely be empowered to pursue a more ambitious reform program.

This particular scenario would be beneficial for France’s public finances. Macron could press on with his reform agenda and diligently work toward restoring the government’s fiscal discipline. Consequently, we anticipate this would result in a relatively lower debt ratio and a lower probability of a clash with Brussels. However, it is important to acknowledge that even in this relatively optimistic scenario, substantial cuts beyond those announced by Economy and Finance Minister Bruno Le Maire would be required to adhere to EU budget regulations. These cuts would need to be sustained over multiple years, given the projected rise in interest costs on France’s outstanding government debt as bonds mature and necessitate refinancing at higher interest rates.

No landslide defeat or victory

Macron’s coalition currently faces an unfavorable outlook according to the latest polls. There is a significant likelihood that it will experience seat losses to Le Pen’s RN, Les Républicains, or left-wing parties. However, these potential outcomes may not lead to substantial changes. Given that Macron’s party does not have a majority in parliament, it is reliant on securing support from other parties. Nonetheless, a weaker coalition could slightly shift the balance toward the opposition.

Les Républicains will play an important role here as they often support Renaissance. They have a reputation for adopting a more conservative budgetary stance and share some common ground with the current government on structural reforms. Renaissance’s preference for Les Républicains as a prospective partner is no secret. Stéphane Séjourné, Minister for Europe and Foreign Affairs, has already indicated that Renaissance will not field a candidate in constituencies where an incumbent Republican candidate is present. Therefore, in this scenario, we can anticipate a continuation of the current policy trajectory and expect somewhat similar outcomes to what we expected prior to the elections.

Alternatively, an alliance with left-wing parties remains a possibility, but only if they remain divided. In 2022, NUPES, the left-wing alliance, managed to secure second place in the parliamentary elections. Left-wing parties immediately stated that they intend to work together. The timelines are short, however, as candidates need to be registered by Sunday, June 16. A united alliance on the left would be bad news for Macron, as the most influential left-wing party (LFI) has minimal overlap with his agenda.

If the left-wing parties don’t mange to unite in time, Macron could collaborate with certain partners on specific issues, presenting an opportunity for collaboration with diverse parties. This could improve his standing in parliament, even if he doesn’t achieve a decisive victory on July 7.

In this scenario, the status quo will not change drastically and Macron will still be able to implement some level of reforms and budget improvements. A slap on the wrist from Brussels is, thus, still very likely and France’s debt sustainability will continue to be a problem (see figures 3 and 4).[1]

[1] Please see the appendix of this report for a detailed description of our forecasting methodology.

Strong results for Rassemblement National

The final scenario entails a victory for RN and the potential formation of a coalition between RN and a faction of Les Républicains. However, for RN to secure a majority with the support of some Républicains, it would need to achieve a substantial number of seats. Presently, RN holds 88 seats, with a minimum of 289 seats required for a majority. Some polls put RN at more than 250 seats, which is close to an absolute majority. Finding a majority could be hard, however. Some members of Les Républicains are not very willing to support RN, and other right-wing parties might not have sufficient seats.

Nevertheless, if this scenario were to materialize, it would result in a situation known as “cohabitation.” Macron would remain the president, while the prime minister would be from another party. Macron, as the president, would retain responsibility for France’s foreign affairs and defense, while the prime minister (RN’s prominent figure Jordan Bardella being a prime candidate) would focus on domestic affairs.

Such a scenario would likely have a profound impact on France’s reform agenda, as RN’s policy agenda significantly diverges from Macron’s. A few years of policy inertia seems almost inevitable. It could also strain France’s public finances, as RN has historically placed less emphasis on debt sustainability and adherence to European budget rules. Consequently, we can anticipate a worsening of France’s debt sustainability and lower economic growth.

Even though Macron denied rumours that he will step down as president, there is still a small possibility that he might. This would lead to new presidential elections with the possibility of Marine Le Pen as the new president. This would likely lead to a different policy agenda with a bigger focus on topics like migration and less focus on topics like the energy transition. Based on Le Pen’s earlier election campaigns, this would be bad news for France’s debt sustainability too.

Although Macron’s announcement came as a surprise, there is a possibility that new elections could work in his favor. However, the likelihood of this scenario is quite low. It is more probable that Macron’s political standing will diminish, albeit not so far as to prevent him from establishing a new government. Nevertheless, it is crucial to recognize that this course of action carries inherent risks. Macron’s party suffered a substantial setback in the European elections, and unfavorable results in the upcoming elections could exacerbate concerns regarding the sustainability of the country’s debt.