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While attention is focused on the Greek election this weekend, Nomura’s senior political analyst Alastair Newton says the outcome of the final round of France’s legislative elections is also important for eurozone prospects.Since socialist Francois Hollande was elected president of France he has tried to secure a left-of-centre majority in the lower house of the French legislature. And judging by the first round of legislature elections on June 10, has met with some success in that end.
But his party Parti Socialiste (PS) and its closest allies secured just 35 per cent of the first round vote, which doesn’t make an overall majority after the 17 June election a sure thing, even if an overall left-of-centre majority looks to be a strong probability.
“The critical question remains whether – with our without the support of the EELV [Green Party] – the PS can get across the 289 threshold required for a majority without having to bring into a coalition the left-wing Front de Gauche (FdG) of Jean-Luc Mélenchon, which secured around 7% of the 10 June vote and is currently forecast to win between 13 and 20 seats,” writes Newton.
But why is any of this important?
The FdG is notoriously anti-capitalist, anti-globalization, and anti-austerity. Newton says this could pull the government further to the left which could:
- Make agreement on domestic policies in general, and spending cuts consistent with reducing France’s budget deficit in particular, challenging.
- It would “open up wider divisions between Paris and Berlin over the handling of the eurozone crisis” and act as another hurdle to policy making at a time when Greece and Spain in particular need a quick and decisive response from EU leaders.
If however the PS can secure a majority without an alliance with the FdG it would make it easy for Hollande to pursue his 60-point economic aimed at creating jobs and boosting growth, while keep France on the path to reducing its budget deficit to 3 per cent of GDP in 2013.
For now Newton says he expects PS to secure a majority without the support of FdG and this should be well received in Berlin and financial markets.