Was it a wise gamble?

Was it a wise gamble?

There are multiple interpretations of the shocking reversal in the second round of French legislative elections. One view sees Emmanuel Macron celebrating, proving critics who thought his gamble was reckless. He challenged voters to welcome the far right into government, and after briefly considering it in the first round, they firmly rejected it. Marine Le Pen’s National Rally came third, with voter turnout the highest since 1981.

Another less favorable perspective suggests Macron has simply traded compromise with one extremist group for another, swapping the far right for the far left. This shift raises concerns among investors that the far left might undo Macron’s pro-business reforms, which could hurt the country’s finances. Investors dislike surprises, as shown by Liz Truss's brief tenure as UK Prime Minister.

This political shift adds to the instability in Western democracies, mirroring concerns seen in the US with Joe Biden’s struggles. A more optimistic view is that the center-left held, suggesting that nationalist populism isn't inevitable. The Republican Front, a tradition of uniting against fascism, remains strong but perhaps too successful.

Jean-Luc Melenchon, the 72-year-old left-wing leader, emerged as the real winner. His policies include taxing the wealthy, raising the minimum wage, and cutting the pension age. Investors are wary of his stance against “extreme markets,” fearing increased deficits and financial instability.

The election signifies a turbulent period, potentially impacting France's image as an investment destination. While the far-right’s Jordan Bardella laments his defeat, Macron remains low-profile, waiting for the new National Assembly to form before making decisions.

Gabriel Attal, the youngest prime minister, plans to resign, distancing himself from Macron. Marine Le Pen downplays her loss, insisting her movement is still rising.

The left's victory in France brings uncertainty, with potential modest fiscal impacts initially, but greater concerns long-term. Bloomberg economists see two scenarios: a minor fiscal change or a larger giveaway, both affecting debt and bond spreads.

At the France Unbowed election night, the atmosphere was defiant, with music and chants celebrating their win and rejecting the far-right.