Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
French and European markets fell on Monday in the wake of President Emmanuel Macron’s shock decision to call snap parliamentary elections after his centrist alliance was trounced by Marine Le Pen’s far-right movement in the European parliamentary vote.
A sell-off in French stocks and bonds dragged down European-wide indices as investors reacted to political instability and the possibility of a far-right government.
By Monday afternoon, the country’s Cac 40 stock index had fallen 1.9 per cent to its lowest since February, with all but two of its 40 member stocks in negative territory. French banks, which hold substantial government debt and could be targeted for windfall taxes, were among the worst performers.
Le Pen’s Rassemblement National secured 31.4 per cent of the vote in Sunday’s EU poll, compared with 14.6 per cent for the French president’s centrist alliance, a stinging blow to Macron. He only narrowly avoided a humiliating third place behind the centre left, which took 13.9 per cent of the vote.
“For me, who always considers that a united, strong, independent Europe is good for France, this is a situation which I cannot countenance,” Macron said. “I have decided to give you back the choice of our parliamentary future with a vote.”
The dissolution is an extraordinary gamble by Macron, who has already lost his parliamentary majority after winning a second term as president two years ago.
His alliance could be crushed, which would force him to appoint a prime minister from another party, leaving him with little power over domestic affairs with three years left as president.
In the aftermath of his decision to call a snap election, investors sold French government debt, with the yield on the benchmark 10-year bond, which moves inversely to price, up 0.11 percentage points to 3.22 per cent.
On the stock exchange, BNP Paribas was down 5.1 per cent, Société Générale fell 8 per cent and Crédit Agricole dropped 4 per cent. Insurer Axa fell 1.8 per cent while asset manager Amundi was down 2.2 per cent.
As reverberations were felt throughout Europe, the region-wide Stoxx Europe 600 lost 0.7 per cent, Germany’s Dax fell 0.8 per cent and London’s FTSE 100 dropped 0.3 per cent.
Benchmark Italian bond yields, a closely watched barometer of Eurozone political risks, rose 0.12 percentage points to 4.07 per cent.
The euro was down 0.5 per cent against the US dollar at $1.0743.
“There’s a ‘shoot first, think later’ mentality in markets . . . but investors have to price a higher risk premium,” said Emmanuel Cau, head of European equity strategy at Barclays.
The RN’s advance in France came alongside advances in the EU elections by other countries’ hard-right parties.
In Germany, the three parties in Chancellor Olaf Scholz’s coalition were all overtaken by the far-right Alternative for Germany (AfD), which came in second behind the conservative CDU-CSU opposition.
Ultraconservative and nationalist parties also won or made significant gains in Austria, Cyprus, Greece and the Netherlands.
Russia hailed the far-right parties’ gains. Kremlin spokesperson Dmitry Peskov said they would soon “step on the heels” of Ukraine’s supporters in the European parliament.
In France the country’s mainstream parties rejected Macron’s offer to form an alliance ahead of the snap parliamentary election, the first round of which will be held in three weeks, on June 30, with a run-off on July 7.
The centre-right Les Republicains said it was “out of the question to enter into a coalition with those who have so damaged France”. The long-fragmented factions on the left said they would seek to put together joint lists, but said no to working with Macron’s Renaissance party.
Additional reporting by Adrienne Klasa
How will the European parliamentary elections change the EU? Join Ben Hall, Europe editor, and colleagues in Paris, Rome, Brussels and Germany for a subscriber webinar on June 12. Register now and put your questions to our panel at ft.com/euwebinar