Leftwing surge thwarts far right in French election

France is on track for a parliament where no party holds a clear majority, leading to difficult discussions to establish a new government. The unexpected win by the left has prevented Marine Le Pen from gaining control and leading the far-right to power.

When the news first came out, markets had a bad reaction. But soon after, things turned around, with the euro staying steady and French stocks seeing some gains.

The progressive Nouveau Front Populaire coalition gained the largest number of seats in the important unexpected election, causing a major setback to Le Pen's Rassemblement National party, which had been close to securing a majority in parliament.

The result shows a strong achievement for the organized anti-RN plan, where the leftist and moderate parties strategically pulled their candidates from the final election rounds.

However, this outcome will leave France's second-largest economy in a state of uncertainty regarding its next government. No single political group is close to achieving a majority in the 577-seat National Assembly.

The Cac 40 index of top French stocks initially dropped at the start of trading, but later changed course to rise by 0.6 per cent by the end of the day. The broader Stoxx 600 index in Europe also reduced its losses and ended the day up by 0.4 per cent.

The difference in interest rates between French and German 10-year bonds, which is used to measure the risk of investing in French debt, increased from 0.68 to 0.71 percentage points initially, but later decreased slightly. The yield on French 10-year bonds went up by 0.01 percentage points.

The euro has been unstable ever since President Emmanuel Macron announced the elections, but it managed to recover from its initial drop and is now trading evenly with the dollar at $1.0816.

Mohit Kumar, the chief European economist at Jefferies, stated that they view the election results as mostly favorable, but with a period of unknowns coming up in the near future. This period of uncertainty might stretch from a few days to a few weeks, as different groups try to form alliances and create a new government.

Christian Kopf, the person in charge of fixed income at Union Investment, stated that Europe has been made stronger by the unexpected decline of far-right populism in Sunday's vote.

According to the Financial Times' tracker for the parliamentary election, the NFP has won 182 seats with all constituency results now available. Macron's centrist Ensemble alliance has secured 168 seats, compared to roughly 250 seats they had in the previous National Assembly.

In the meantime, Le Pen's party was bumped down to third place due to the front républicain strategy, securing 143 seats. Nevertheless, this was a notable improvement from the 88 members of parliament it had in the previous assembly.

People at the main RN election event were shocked and cried when they heard the initial predictions from the pollsters on Sunday.

Le Pen stated that her party's success had simply been put off for now and that the popularity of the far-right movement is growing.

Jean-Luc Mélenchon, the passionate opponent of capitalism and head of the progressive La France Insoumise (LFI) party within NFP, took a bold stance by urging Macron to select a prime minister from the left side of the political spectrum.

"The president has the authority and responsibility to appoint the Nouveau Front Populaire to lead," he stated, promising to implement the NFP's ambitious plan of high taxes and high government spending, which has made investors nervous.

"The desires of the public must be carefully honored...The president and his coalition have been officially beaten," declared Mélenchon.

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Quickly put together in response to Macron's announcement of the election last month, the NFP is made up of the centrist Parti Socialiste (PS), the Communists, and the Greens.

The expected outcomes were received with great joy at a political event for the PS party in Belleville, Paris. Attendees cheered "front populaire" and sang "La Marseillaise".

"It's fantastic! Absolutely fantastic," stated Nicolas Mayer-Rossignol, the PS mayor of Rouen and a prominent member in the party, in an interview with the FT.

The NFP's economic plan would be a significant departure from Macron's pro-business agenda and enthusiasm for tax cuts.

France seems to be entering a time of uncertainty when it comes to politics. This could have a big impact on both France and the European Union, as Paris plays a significant role in shaping EU policies, along with Germany.

In France, the president selects the prime minister, who usually comes from the party with the largest number of members in the National Assembly, even if they do not have a majority.

Prime Minister Gabriel Attal, who started his term in January and headed the Ensemble initiative, announced that he will resign on Monday but will stay on as interim leader for as long as necessary.

Mélenchon has put himself in the running for prime minister, but there are some factions in the NFP that are strongly against this and are also competing for the position.

Macron and his supporters have decided against joining forces with either LFI or RN to create a government.

Ensemble officials will contact moderate members of the NFP, like the Socialists and Greens, as well as the conservative Les Républicains, to see if they are interested in collaborating. This information was shared by an Élysée official.

Yet, it may be challenging to make this agreement happen because the parties have conflicting opinions.

An option of last resort could be to establish a technocratic administration headed by a skilled and impartial leader, even though this deviates from the typical practices in French politics.

Although Macron's results exceeded expectations, his power will be somewhat diminished following the election.

Macron took a risk in June when he decided to hold an early election after his centrist Ensemble party was defeated by the RN in the European parliamentary elections.

The president stood by the decision, which shocked and upset many, including some of his own supporters, explaining it was important for "clarification".

Bernard Sananès, leader of the Elabe pollster, expressed that the outcomes signified a success for the centrist and leftist parties coming together as a front républicain. He noted that voter participation rose in key races where they were up against the far right.