The French financial markets experienced a significant downturn following President Emmanuel Macron's unexpected announcement of a snap parliamentary election. This move came in response to a resounding defeat for his centrist Renew party in the recent European Parliament elections, where the far-right National Rally (RN), led by Marine Le Pen, secured a commanding victory with 31.5% of the vote compared to Renew's 15.2%.
In the wake of Macron's announcement, The Paris CAC 40 Index is down 6.2% on the week, surrendering its gain for the year and heading for its biggest weekly drop since March 2022 according to Bloomberg, driven by substantial losses in major financial institutions such as BNP Paribas and Societe Generale. Additionally, the euro has fallen by as much as 0.6% to a one-month low, trading at $1.0733, and hit a 21-month low against the British pound. The uncertainty surrounding the upcoming election has intensified investor anxiety; "options volatility, a measure of demand for protection, on contracts expiring on July 1 neared 6%, its highest since early May", Reuters reports.
Macron's decision to dissolve the National Assembly and call for new elections, scheduled for June 30, was described as a bold but risky gamble to regain political control and counter the rising influence of the far-right.
Macron's has added pressure on European markets already grappling with geopolitical uncertainties and fluctuating economic conditions. However, the real impact on markets will depend on the performance of far-right leaders Marine Le Pen and Jordan Bardella in the upcoming elections.
The repercussions of Macron's announcement are seen as a wake-up call for the euro area, especially given the ongoing concerns about France's high debt levels and recent credit rating downgrade from AA to AA- by Standard & Poor's on May 31st.
In his address to the nation, Macron stated, “After having carried out the consultations provided for in Article 12 of our Constitution, I have decided to give you back the choice of our parliamentary future by voting”. This move comes just weeks before France hosts the 2024 Summer Olympics, adding another layer of complexity to the nation's political and economic landscape.
