France’s Legislative Elections: Government Faces Setback in Addressing Credit Challenges

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

1. Less domestic policy predictability is a likely outcome

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

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

A narrow and uncertain majority coupled with strengthening of the opposition bloc centered around the left-green coalition and far-right (altogether holding 38% of parliamentary seats) is likely to hinder reform capacity and reduce policy predictability, especially around socially-sensitive subjects such as pensions reform.

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

2. Difficult to avoid greater political instability

Macron can in theory use his executive powers to circumvent political opposition in the National Assembly to continue delivery on strategic reforms. A prime minister holds the power to unilaterally pass a bill (once during each parliamentary session) without consultation with members of parliament, but at risk of facing a motion of censure, which could result in overthrow of the government in lieu of an absolute parliamentary majority.

A minimum of 58 members of the National Assembly is required to introduce such a motion of censure against government – as the left-green coalition intends to do on 5 July to test capacity of the President to reach the 289-seat majority.

The President could also consider dissolution of National Assembly and calling early legislative elections, but this would result in risk of concluding in ‘cohabitation’ – as happened most recently in 1997.

3. Macron will try to build a broader governing coalition

Rather than blocking the parliamentary process, we expect reforms to continue but at a slower pace, including with potential reversals around the most socially sensitive parts of the government agenda. Our baseline is that President Macron and parliamentary allies follow a gradual approach in trying to enlarge the coalition formed by the President’s alliance by at least 44 seats – even if this means adjusting the government agenda with case-by-case agreements with other political groupings, such as to curtail risk of popular opposition.

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Thomas Gillet is an Associate Director in Sovereign and Public Sector ratings at Scope Ratings GmbH.