Post Election UK and French Update (7pm 9th July)
The UK still looks like an island of stability for the next 5 years, albeit with the emergence of Reform as a major disruptive force. France still looks ungovernable in the normal sense of the word, but not because the far right will form a viable government. Despite winning 37% of the popular vote RN ended up as the third largest party in parliament thanks to the tactical alliance between the left wing NFP and Macron's Ensemble National party,
The end result might be a (fragile) coalition of centre left and centre right deputies (roughly 300 of the 577 seats went to parties who could be described as such) or a technocratic government of some sort which allows all parties to disown any belt tightening needed to hit EU fiscal targets ,and might just be able to get some modest reforms enacted.
In that sense the Centre did not Fold, despite the apparently chaotic results.
.Still,,Macron may feel bound to offer the NFP a first shot at forming a government, in which case Melanchon will almost certainly overplay his hand and irritate other parts of the NFP so much a government will never be formed or it would be very quickly brought down by a vote of no confidence. In terms of policy platform it's worth noting that the NFP manifesto was written down on the back of an envelope in just a few hours after Macron surprised everybody by calling a snap election. It's not a viable program for government.
If a FNP government with Melanchon prominently involved ever does get formed, you can't totally rule out that some form of wealth tax would be passed with tacit assistance from the RN, but aside from that it looks like very little of the radical right or left wing policy agenda will actually get through this fractured parliament.
Indeed, almost all parties will work out that actually trying to govern would be a poisoned chalice and simply lead to more votes and seats being lost the next time round. That makes a technocratic government our most likely medium-term outcome.
All parties will then do their best to position themselves for a new general election next summer or autumn, though there is no certainty that any of the major parties will want to try and govern then either. So it might be a series of technocratic governments all the way until the next Presidential Election.
Finally, it is worth asking what happens to Marine Le Pen's party from here. After all they got a higher share of the popular vote than the Labour Party in the UK but in terms of seats were as much a victim of tactical voting as the Tories were in the UK. For many voters in the UK it was "I'll vote for anyone so long as it isn't the Tories". In France it was "I'll vote for anyone so long as it isn't the RN"" for a big part of the electorate.
Which highlights the RN's strategic problem, if it ever wants to form a government and win the Presidency. Will they therefore have to tack further towards the centre to try to assuage half the country's fears about having a Far Right government?
As far as the euro and French bonds and equities go, this apparently chaotic outcome is probably not the end of the world, or an immediate existential threat to the European Project. Buy the Melanchon dip if there is one.
Nevertheless, the sense of unease will remain as both the Far Right and the Far Left dream of taking real power into their hands. At that point Macron may well leave leave office repeating that most famous of Gaullist phrases
"Apres moi, le deluge"
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