Threat of far-right election success in France spooks investors

Sell-off in French stocks as snap election raises prospect of a far-right government in the EU’s second-biggest economy

French stocks are being sold off as investors take fright at the prospect of Marine Le Pen's party winning upcoming elections in France. Photograph: Julien De Rosa/AFP via Getty Images

The prospect of a far-right government in the EU’s second-biggest economy has spooked investors, with French stocks selling off after Emmanuel Macron called snap elections following big gains for Marine Le Pen’s Rassemblement National (National Rally, RN) in European elections.

The Irish Times view on the snap French election: Macron’s big gambleOpens in new window ]

French stocks had their worst week since September 2022, with the Cac 40 index in Paris down more than 5 per cent since the snap elections were called.

Irish economist Michael O’Sullivan, formerly of Credit Suisse, describes Macron’s move as a “huge gamble”, saying there is a “real risk” of a RN government that “spurs risk in the euro-system”.

Analysts agree.

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Morgan Stanley says while the sell-off in French banking stocks may be overdone, equities will remain under pressure until election uncertainty is resolved.

That’s echoed by Barclays. The sell-off is “potentially excessive”, but there’s “no need to rush to buy the dip”. Barclays reckons the most likely outcome is a right-wing coalition headed by Le Pen’s party.

That would be a “fragile” coalition, but an absolute majority for the RN would be even more problematic.

A political agenda based around “protectionism, state intervention and a halt to immigration” could both “endanger European integration” and further widen France’s already significant public deficit.

The potential for markets to be badly rattled by unfunded spending plans is obvious, with Barclays noting the financial upheaval generated during former UK prime minister Liz Truss’s brief tenure in September 2022.

Ironically, following years of political turmoil, analysts are now more sanguine about the UK, with JPMorgan citing Labour’s centrism as a reason why victory for the party in next month’s elections will probably be seen as a positive for UK markets.

Instead, the focus is on France. “Fasten your seat belt”, says Barclays.