By Thomas Gillet, Associate Director, Sovereign and Public Sector Ratings

President Emmanuel Macron and his centrist alliance “Ensemble!” obtained a simple parliamentary majority with 245 seats out of 577 in the National Assembly. The result avoids a ‘cohabitation’ in which the president, from one party, faces a parliament led by another. The loss of an absolute majority, however, constitutes a potential setback in addressing France’s credit challenges (AA/Stable)

1. Less domestic policy predictability is most likely outcome

The rise of a left-green coalition led by far-left candidate Jean-Luc Mélenchon and a parliamentary breakthrough by the far-right National Rally party of Marine Le Pen were the features of France’s legislative elections, the second round of which was held on Sunday. Mélenchon’s Nupes alliance won 131 seats. Le Pen’s “Rassemblement National” won 89. The result makes President Emmanuel Macron’s capacity to deliver on reforms increasingly uncertain as it will require significant coalition building.

A political agreement on forming governing coalition with the mainstream centre-right party “Les Républicains” (61 seats) and/or moderates of the left or a series of ad-hoc pacts could enable the “Ensemble!” to put together an absolute majority of 289, but this may involve significant compromises with the risk of watering down Macron’s initial agenda.

A narrow and uncertain majority coupled with the strengthening of the opposition block centered on the left-green coalition and the far-right party (altogether 38% of seats) is likely to hinder the reform capacity and lower policy predictability, especially on socially sensitive topics such as pensions.

This could also diminish President Macron’s standing on European affairs if he struggles to control the domestic agenda.

2. Difficult to avoid greater political instability

Macron can in theory use his executive power to circumvent political opposition at the National Assembly to continue delivering strategic reforms. A prime minister has the power to unilaterally pass a bill (once for each parliamentary session) without consulting members of the parliament, but at the risk of facing a motion of censure, which could lead to the overthrow of the government in the absence of an absolute majority.

A minimum of 58 members of the National Assembly have also the ability to introduce a motion of censure against the government – as the left-green coalition intends to do it on July 5 to test the capacity of the presidential party “Ensemble!” to reach the 289-threshold.

The President could also consider the dissolution of the National Assembly and call early legislative elections, but at the risk of ending up with a ‘cohabitation’ – as happened most recently in 1997.

3. Macron’s focus likely on building a broader governing coalition

Rather than blocking the parliamentary process, we expect reform to continue but at a slower pace, including with potential reversals on the most socially sensitive agenda. Our baseline is that President Macron and his parliamentary allies will follow a gradual approach to try to enlarge the coalition formed by the presidential alliance by at least 44 seats – even it means adjusting the government’s policy agenda with case-by-case agreements with other political parties, potentially reducing the risk of widespread popular opposition.

France’s legislative elections: a far-left majority would exacerbate credit challenges, May 2022

President Macron faces narrow path to reform given less favourable socio-economic conditions May 2022

France: welfare state faces fiscal squeeze if no change in policy under next president, April 2022

France: will enhanced governance framework for public finances improve fiscal credibility? April 2022

Political fragmentation and polarisation in France could frustrate pursuit of economic reforms, March 2022

France: credit outlook hinges on decisive post-election action on structural challenges, February 2022