Macron could govern on an issue-by-issue basis or roll the dice by calling another election next year. Either way, a less stable policymaking environment will add to the country’s economic challenges
President Emmanuel Macron’s failure to garner a majority in the legislature will complicate the government’s ability to counteract a slowing economy. Growth-enhancing reforms to France’s labor market and pension system will be watered down to attract support from opposition parties, which could lower business confidence and private sector investment. While the government should be able to pass its purchasing power bill in July, growth in consumer spending will continue to decelerate amid rising inflation. However, MNCs can take comfort in knowing France’s relationship with the EU will remain broadly stable, with foreign policy falling within the scope of the president.
On June 19, French voters participated in the second and final round of voting to choose 577 members for the National Assembly, the country’s legislative body. For the first time since 1988, the French president is now without a majority in the legislature, with Macron’s coalition, Ensemble! garnering just 2On June 19, French voters participated in the second and final round of voting to choose 577 members for the National Assembly, the country’s legislative body. For the first time since 1988, the French president is now without a majority in the legislature, with Macron’s coalition, Ensemble! garnering just 245 seats. Worryingly, the far-right party, Rassemblement National (RN), is the largest single opposition party, having garnered an historic 89 seats. Meanwhile, the New Popular Environmental and Social Union (NUPES), a loose, informal alliance of left-wing parties, won 131 seats. In response, Prime Minister Elisabeth Borne submitted her resignation to Macron, who subsequently rejected it, delaying a possible government re-shuffle.
The prospects for Macron going forward are limited and unenviable. In theory, he could form a coalition with Les Republicains (LR), a conservative party, which would likely back his increase in the pension age and tax cuts but would push for a faster reduction in government spending. Such an outcome would help buoy business confidence, with positive knock-on effects for B2B demand. However, LR members are split in their support for Macron, with the party’s president ruling out a formal coalition. While some LR MPs could still support Macron’s government, their numbers wouldn’t be sufficient to hand him a majority. Instead, the party is expected to back the government on a case-by-case basis.
Alternatively, Macron could form a “stereo majority.” This last happened in 1988 under former President François Mitterrand and entails courting votes from different parties on different issues. However, such an arrangement is inherently unstable and would likely result in periods of complicated horse-trading, which slow the legislative process and delay progress on the fiscal consolidation front.
Another complicating factor is the success of the RN, which has enough seats to form a parliamentary group for the first time since 1986. Significantly, it is now entitled to positions in the Assemblée Nationale and its subcommittees, which will enable it to influence the legislature’s agenda. As a parliamentary group, the RN can also request a suspension of the legislative session or a referendum. Given its newly found influence, the RN is expected to be a thorn in the side of Macron’s government, blocking reforms relating to the labor market, pension system, and climate change.
While the alliance of left-wing parties registered a remarkable surge in support, it lacks a unifying force. Cracks have already begun to show, with several of the parties rebuking the leader of La France Insoumise Jean-Luc Mélenchon’s call for them to form a single parliamentary group and disagreements over whether to push for a vote of no confidence in Borne’s government. If these cracks widen, it could encourage Macron to call an early election next year in the hope of capitalizing on the left’s divisions.
The first test of Macron’s new government will be the passing of its bill to alleviate the impact of inflation on consumers’ purchasing power. The bill will be presented to parliament on July 18 and will be voted on before the summer recess in August. Given the financial pressure on French households, Macron should be able to garner enough support from opposition parties to pass the bill. However, MNCs shouldn’t interpret this as an emerging sign of cooperation within the legislature. Instead, MNCs will need to prepare themselves for a more fractious and protracted policymaking environment. Furthermore, the legislature’s fragmentation underscores deep societal divisions, with strikes and demonstrations highly probable amid high prices and a weakening economy.
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