French left set for shock victory over Macron and Le Pen

A left-wing coalition is on course to win the most seats in France’s legislative election in a surprise blow to far-right leader Marine Le Pen, who had hoped to form the next government.

The New Popular Front, which includes the Socialists and far-left France Unbowed, is poised to get between 170 and 215 seats in the National Assembly, according to early projections. That’s still far short of the 289 required for an absolute majority in the 577-seat lower house.

Le Pen’s National Rally, which pollsters last week had seen winning the most seats, is expected to come in third, getting between 110 and 158 seats, while President Emmanuel Macron’s centrist alliance is set to place second with 150 to 182.

A victory for the New Popular Front is likely to alarm investors concerned about the state of France’s public finances. The group has promised a major increase in public spending, a boost to the minimum wage and a cut in the retirement age, measures that would provoke a major clash with the European Union.

“The NFP will implement its program,” Jean-Luc Melenchon, the leader of France Unbowed, told supporters Sunday. “Nothing but its program, all its program.”

Even if the group doesn’t have the votes to govern alone, it’s likely to demand new spending commitments from Macron in order to form a new administration.

Since no party is expected to get more than 50% of the seats in parliament, Macron will have to name a prime minister to lead a minority government. That post usually goes to the group that wins the most seats, but the indecisive result could lead to a period of coalition building among parties.

The projections offer some vindication for Macron’s call to dissolve parliament following a crushing defeat to Le Pen’s party last month. He was been widely criticized for the decision after his party finished a distant third in the first round of voting last week in which Le Pen seized the initiative.

Macron has previously suggested that parties from opposing political groups could govern together to block the “extremes,” opening the door to a minority centrist coalition.

According to a projection by Toluna Harris Interactive, which broke down the estimates by party, Macron’s group along with the more moderate wing of the New Popular Front, could on paper reach 306 seats, a comfortable absolute majority.

The question is whether those parties would be willing to work together. Melenchon said he would refuse to enter into any deal with Macron.

The past week has seen frantic efforts to activate the so- called Republican Front — an arrangement in which mainstream parties strategically pull candidates from certain races to bolster anti-National Rally votes. Macron’s party withdrew 76 candidates from runoff contests where they had little chance of winning, in order to avoid splitting the anti-Le Pen vote. The New Popular Front withdrew 130.

France can ill afford a sharp increase in spending to appease dissatisfied voters since the government is already struggling to contain the budget deficit. The European Commission last month put the country in a special procedure for breaching deficit rules that could make it difficult to limit efforts to implement any ambitious spending plans while adhering to EU rules.

Macron dissolved the lower house nearly four weeks ago and called a snap vote after his group was trounced in European elections.

France’s CAC 40 Index has been the worst performer among major European stock indexes since Macron called the snap election last month, while at the peak of the selloff a metric of bond-market risk soared to its highest since the sovereign debt crisis.

Stocks rallied last week after the first-round vote eased worries about a far-right government, and overall market stress has receded.

Still, the CAC 40 remains roughly 4% below levels seen before the June 9 snap election call. The premium that investors demand to hold French government bonds over German ones stands at less than 70 basis points, below the peak of 86 basis points in the wake of the election call but well above the level of 50 basis points from early June.

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