Macron Goes Full 'Sunak' - The Risk To France Rises

TOPSHOT - French President Emmanuel Macron reacts as he delivers his speech during the National ... [+] Roundtable on Diplomacy at the Foreign Ministry in Paris on March 16, 2023. - Frances Foreign Ministry is undertaking a sweeping review of its vast diplomatic corps, an effort driven by President Emmanuel Macron to adapt French diplomacy to 21st century challenges. (Photo by Michel Euler / POOL / AFP) (Photo by MICHEL EULER/POOL/AFP via Getty Images)

The European elections have left the centre still ‘holding’, the Greens badly damaged, a mixed night for the far-right, Meloni in the ascendancy across Europe and Macron not only damaged but now imperilled by his decision to call an election. Scholz in Germany is also damaged but at least he has not imperilled himself in the same way that Macron has.

From a European point of view, the European 'centre' in the parliament looks like it will hold (the EPP has fared well) and a new executive (Von der Leyen etc) will most likely be elected. Its momentum is boosted by a good showing for Donald Tusk, and the decent showing for Friedrich Merz’ party in Germany.

The major story is in France, where the Rassemblement National has performed in line with the polls, in its best ever elections, and Emmanuel Macron has called a parliamentary election for the end of June/early July.

Though this move was allegedly prepared some months ago, in my view this is a mistake - echoing the decision of Rishi Sunak recently for example. My sense is that the vote for the RN is entrenched, Macron is personally unpopular with a large section of the public and the risk is Macron's effective attempt to build an anti-far right coalition (as there is in Romania and Portugal) fails in the sense that a large vote for the RN persists, and that a large coalition (of socialists, republicans and En Marche) is very hard to marshall. Such a coalition would likely need to take a tougher stance on immigration for instance and this will be very hard to implement. Neither will such a coalition have fiscal space (French debt has recently been downgraded). It is also the end for the ‘Attal’ experiment.

My expectation was that Macron would react to such a ‘defeat’ by tilting his government more towards the right, as is generally happening across Europe. Instead, he has decided to gamble on an election, hoping that as in the past whenever France has been forced to choose between the far-right and the centre, it has opted for the centre. This time might be different.

Macron may count on the fact that the RN are not ready to fight an election (the same goes for other parties) and that the result of the election will be a patchwork of parties that he can govern over. My instinct is that this is a huge gamble. In coming days, I expect that there will be electoral pacts between some of the parties so as to maximise the seats held by the parties that will make up the potential new coalition.

The implication for France and Europe is that if it doesn't go Macron's way, political and economic uncertainty in France will rise, and Macron - the effective driver of political momentum in Europe - will become a lame-duck president. The prospect of a RN government (led by Bardella?) is an extremely difficult one for Macron, and it is surprising that he has opened the door to this, especially ahead of the Olympics. There is a real risk that this result and the prospect of a RN government spurs risk in the euro-system.

‘In ‘L’Accord du Peuple’ (Calmann-Levy) Pierre-Charles Pradier and I remark that the French elite need to involve the ‘people’ more in politics, and Macron has thrown down the gauntlet. It is a very risky move and there will be an enormous political mobilization ahead, with plenty of logistical complexities (school holidays, candidate selection).

Elsewhere in Europe, the results are generally as expected and good for the notion that the ‘centre will hold’. The EPP remains the largest party and the ‘centre’ (S&D, EPP and RE) will have close to 400 seats, which allowing for some parties and members of parliament that won’t vote for Ursula von der Leyen but some independents and smaller groups may, my sense is that the passage of the next EC executive will not be disrupted.

Specifically, in Poland the pro-EU parties have done better than expected, in Portugal Chega has not matched the vote it received in the recent elections, in Ireland Sinn Fein has done much less well than expected. Olaf Scholz’ coalition is further undermined, and this may not be a bad thing if it accelerates the advent of an election. AfD have gained, but much less so than recent polls had suggested.

In general, European politics is moving to the right, and the parliament will be more active on right leaning issues. In my view there will be little disruption of the ‘strategic’ initiative in Europe (save that its leading intellectual, Macron, is damaged) in the sense of policy on Ukraine, AI/Digital Services and infrastructure. There will certainly be less emphasis on green regulation – but perhaps not green investment. The new field for debate will be defence, with the prospect that Europe had a defence commissioner, and a new, more forceful foreign affairs commissioner (Kallas?).

Economically, we are in the antechamber of a rate cut cycle in the euro-zone and economic activity is just picking up from weaker levels. Macron’s decision adds some tailrisk to euro assets and means that there is great uncertainty over French economic policy.

The drama will continue.