Above: File image of Marine Le Pen. Source: Marine Le Pen Officiel
Political and fiscal uncertainty will be the watchword if France's Sunday vote results in a 'hung parliament'.
"We do not know really how this would work," says a new research vote from French banking giant Crédit Agricole ahead of the second-round vote.
Marine Le Pen's RN party is set to secure the most votes, but most pundits think it won't secure enough (240 seats) to govern. The added complication is that no obvious partners exist who would join RN to help it pass legislation.
Crédit Agricole analysts Louis Harreau and Valentin Giust say a caretaker government would likely continue taking care of things, under the budget bill for 2024. "It would likely not trigger any dramatic tension."
But market concerns will linger. In October, when budget discussions for the coming year start, France could find itself in a complicated position; "you would need a non-opposing majority to pass a budget."
Markets are increasingly concerned about France's fiscal outlook, as spending is now above the EU's mandated thresholds. French bonds fell after President Emmanuel Macron called the legislative elections, as investors fretted that the country's finances might deteriorate further under a far-left or far-right government.
Crédit Agricole's calculations show RN can secure approximately 245 seats, giving it a "strong minority."
Harreau and Giust say this would leave the party in "a grey area". Although Macron's Ensemble government has 244 seats, it has more or less managed to govern as it could strike deals with various factions to get business through the assembly.
The problem RN faces is it will have more difficulty than Ensemble finding allies (or non-opponents).
It could again seek support from the Republicans (LR), "but it would have to make substantial concessions to LR to keep this support," say the authors.
Markets have factored in a hung parliament outcome from Sunday's vote, but analysts we follow point out that fiscal and political uncertainty will remain a feature for French assets in the coming months.
This could be reflected in a lingering premium in euro exchange rates.
Another plausible scenario is a relative majority for RN if it does better than currently expected and wins more than 265 seats. (This could be an outcome if it finds a coalition partner).
Here, RN could govern on its own, but it would have to find external support from other parties via various agreements to pass legislation. The authors note an ally would not necessarily vote with the government but could abstain.
A full RN majority would need the party to secure more than 289 seats. Crédit Agricole says this outcome is less likely given centrist and left-wing parties have withdrawn candidates to form an anti-RN coalition.
There are 90 three-way contests to be decided on Sunday, two four-way contests, and the remaining 408 seats will be two-way races.