France: La Bombe Surprise

And after many a summer dies the swan

Tithonus (1859), by Alfred, Lord Tennyson (1809-92)

London-Paris: A Tale of Two Cities

From the day Rishi Sunak called the UK general election on 22 May there was never much doubt that it would result in a supermajority for Sir Keir Starmer’s Labour Party. In contrast, from the moment that President Macron dissolved the Assemblée Nationale on 09 June, the most likely outcome for the French legislative elections was that it would produce a hung parliament – and so it has turned out.

But the big surprise last Sunday evening (07 July) was that, while Marine Le Pen’s Rassemblement National (National Rally or RN) was expected to form the largest party after the first round on 30 June, it was the hastily cobbled together left-wing alliance of the New Popular Front which emerged as the victor. The leftist grouping won 188 seats as compared with 142 for the RN. The Macronistas, who largely now go under the monicker of Ensemble (Together – the fourth re-branding in seven years), returned 161 deputies. No party got even near the 289 seats required to command a majority in the chamber.

The main reason why the RN – which, it was said, had been “at the gates of power” – was thwarted was that President Macron’s supporters and the leftist alliance formed an “anti-fascist” pact whereby their own candidates stood down in any constituency where they had come third to confront the RN candidates head-on. Jordan Bardella, the president of the RN and its presumptive nominee for prime minister, described this in Faustian terms as “a pact with the devil” and as “an alliance of dishonour”.

Mass tactical voting undid the RN’s hopes. However, the RN made huge gains relative to the previous parliament – they were up from just 89 deputies. But the prize that seemed so near – power – now eludes them. Even with the support of the 48 Republican deputies (the French analogue to Britain’s Tories) the RN would have nowhere near a majority in the Assembly.

The Nouveau Front Populaire is an uneasy grouping. It embraces members of the once mighty French Communist Party, numerous Green factions of varying degrees of anti-capitalism, the Marxist La France Insoumise (France Unbowed – LFI) plus some unsavoury elements who appear to back Hamas in the Israel-Gaza war, Antifa and a coterie of economic illiterates. Remember that, after Israel and the United States, France is home to the third largest Jewish community in the world – and many French Jews have been subject to antisemitic attacks of late.

LFI is led by Jean-Luc Mélenchon, a 72-year old Marxist-Leninist ideologue who by comparison makes our own national treasure Jeremy Corbyn seem like a disciple of Sir Jacob Rees-Mogg. He proposes punitive new wealth taxes on “the rich” as well as new business taxes and he would wind the state retirement age back to 60 and hike welfare. He would hugely increase the minimum wage, release up to 16,000 prisoners and grant immediate asylum to all “climate refugees”.

Monsieur Mélenchon has cast himself as the leader of the leftist alliance, proclaiming the victory of the left on Sunday evening, even though LFI deputies make up less than half of the 188 Popular Front representatives elected in the new National Assembly. He has sought to present himself as the natural choice for prime minister, a post that is now vacant thanks to the resignation of President Macron’s previous nominee, Gabriel Attal – though Monsieur Attal lingers on as caretaker.

Under the British constitution, it is the monarch who appoints the prime minister (who convention demands must command a likely majority in the House of Commons – so that power is largely theoretical). Similarly, under the constitution of the French Fifth Republic, it is the president who appoints the prime minister – though a French president, who is directly elected, has executive powers which British monarchs relinquished centuries ago. Normally, a French president appoints a prime minister who shares his policy agenda; but from time to time, as now, it is necessary for a president and a prime minister of opposing views “to cohabit”. Hence the French political term cohabitation.

President Macron does not have to make an immediate decision as to who leads the new government. There is talk that he will appoint a caretaker government of technocrats akin to that of Mario Draghi in Italy over 2021-22 which will at least steer France through the summer months and which – hopefully – will avoid political upheaval while France hosts the XXXIII Olympiad which opens in Paris on Friday, 26 July. In extremis, President Macron can always rule by decree – but that could easily spark unrest. Meanwhile, the Gendarmerie (regular police force) and the Garde Civil (riot police) are on standby. Under the constitution, the president cannot call another election for at least one year. And it is unlikely that a technocratic government of unelected mandarins would be able to last that long without suffering a vote of no confidence in the National Assembly.

The are at least two other possible scenarios. Firstly, President Macron could appoint Monsieur Mélenchon or some other luminary of the left to preside over a minority left-wing government. Macron would calculate that a leftist government would not be able to get their more radical proposals through the National Assembly, though they would certainly attempt to undo the president’s reforms of the labour market and taxation of capital. Second, the president might try to put together a grand coalition of the centre and the left. The problem here is that it is difficult to imagine that they could agree a mutually acceptable common programme.

Emmanuel Macron called the legislative elections supposedly because he wanted to test the will of the French people after the strong showing of the right in the election for the European parliament. In fact, he has greatly weakened his own authority while demonstrating to the world that in France – as in other European countries – the centre is losing out to the far-right and far-left. France – like the USA – looks more polarised than ever. But there is no longer the danger that the President of the Republic will be humiliated and forced to resign before the end of his term in 2027.

What is concerning for investors is that there is currently no prospect that a government will come to power in Paris with a mandate to fix the high-spending reflexes of the French deep state and its dire structural deficit. France’s fiscal deficit has averaged 4.7 percent since 2012. Germany’s fiscal deficit has averaged just 0.5 percent. France’s debt-to-GDP ratio is 111 percent and rising. Private sector debt is also massive. Earlier this week the EU rebuked France, demanding that the country cut spending by €15 billion or face sanctions under the Excessive Deficit Procedure. If implemented, spending cuts would make forming a viable coalition government even more difficult.

Germany could not bail France out in a crisis, even if it wanted to. German finance minister Christian Lindner suggested the week before last that any move by the European Central Bank to rescue France by propping up French debt would raise serious “legal and constitutional” questions. President Macron’s project for a European ministry of finance is now dead in the water.

That is why, having partially recovered when it became clear that the RN would not take power, the Paris Bourse has been subdued since the weekend. The yield on the benchmark 10-year Trésor bond has eased slightly and is running at 3.137 percent this morning, representing a spread over the equivalent 10-year German Bund of a historically high 71 basis points.

There were a number of violent incidents during the election campaign. Some of the Popular Front candidates including Elsa Bougeard and Philippe Canceil threatened to unleash havoc if the RN won. Even President Macron spoke of prospective civil war. A friend of mine who lives with his French wife in the Lot tells me that they felt intimidated by the leftist activists who knocked at their door. The prevailing mood is not sanguine.

On Wednesday (10 July) the right-leaning Le Point ran a piece entitled “What has Macron done to France?” In his early years in power Emmanuel Macron was considered a beautiful political swan – serene, clever and youthful. But Le Point now sees him as “a spoilt child”, a man who began with bid ideas and who finished by plunging France into chaos.

Many French people place the blame for the current impasse on the president himself. Perhaps it is as well that he will not be running for re-election in 2027 in a contest that Madame Le Pen is hopeful of winning. She fought a competent election campaign and is more popular with her loyal support base than ever. Her protégé, Jordan Bardella, reinforced the RN’s support amongst the young who cannot all now be assumed to back the left.

Now Marine Le Pen as President of the Republic really would spook the markets!

The view from London: the immigration headache just will not go away

In the week that the new Labour government under Sir Keir Starmer – to repeat the cliché – hit the ground running, there was some relief that the RN did not take power in France. Apart from the fact that both the new prime minister and the new foreign secretary have indicated that they wish “to reset” relations with the EU, there is the thorny issue of illegal immigration. A government led by Jordan Bardella would have undoubtedly created a “hostile environment” (to use Mrs May’s term) for illegal immigrants – the sans papiers, many of whom subsist in bidonvilles (shanty towns) on the edges of France’s great cities. That might have increased the flow of illegals crossing the English Channel in dinghies.

On immigration – the issue which former PM Sir Tony Blair signalled this week that Labour must address – we still don’t know how Labour will respond. The Rwanda deportation policy has already been officially junked, even though several EU countries are rolling out equivalent schemes. Reportedly, a migrant camp near Calais erupted in cheering on learning this news.

It is all very well setting up the Border Security Command (great name – it sounds really scary) to smash the criminal gangs, but there is a parallel here with the so-called war on drugs. When criminals are removed from the people trafficking supply chain – and British bobbies on patrol in Calais would be a great step forward to this end – new miscreants will step forward because there is easy money to be made.

And, as in the war on drugs, reducing supply does not reduce underlying demand. That demand arises because prospective illegal immigrants regard gate-crashing the British party as a low-risk yet high-reward endeavour. They know they will not be mistreated because we are a tolerant and humane society and that, sooner or later, they will be given free healthcare, decent education for their children and maybe social housing too. Some of them will work hard and contribute greatly to our economy; others will remain net recipients of state funds throughout their lives – just as the national finances deteriorate.

Labour would like a deal with the EU whereby illegals who cross the Channel might be returned. But the quid pro quo would almost certainly be that Britain would have to accept a quota of migrants picked up in the Mediterranean.

As far as legal migration is concerned, the new British government may benefit from a fall in new arrivals resulting from tighter visa policies announced by the last government. They might even scrap the worker shortage list – although if Labour’s house-building plans are to be realised then we shall need more bricklayers, carpenters, plumbers and the rest who are already in short supply. I would be very surprised if they don’t eventually accept the EU’s offer of freedom of movement for 18 to 30-year olds. That will ignite an almighty row with the die-hard Brexiteers – indeed, it has already begun in the pages of the Daily Mail. I shall have much more to say on this soon.

Moreover, many amongst the new Labour intake of MPs will applaud if Monsieur Mélenchon gets the keys to the Hôtel Matignon (the official residence of the French prime minister). They regard the red-green agenda with punitive taxes on “the rich”, new restrictions on motorists and the rest, as progressive. And perhaps a socialist France will signal a new trend wherein the centre does not hold. Britain’s election recorded a record low turnout of around 60 percent; France’s achieved a record high turnout of the same number. We are constantly told that people are disenamoured with conventional politics on both sides of the Channel – and the outcome is a move to the extremes.

Afterword: electoral statistics

Sir Keir Starmer’s Labour Party won a majority of 172 seats in the House of Commons with 33.7 percent of the popular vote. (That is the figure currently offered by Wikipedia). In comparison, Boris Johnson’s Tories won 43.6 percent of the vote in December 2019. Turnout was around 60 percent – so only about one in five registered British voters ticked the box for a Labour candidate. In total, 9.73 million people voted Labour on 04 July. In contrast, Jeremy Corbyn secured 12.87 million votes in June 2017 – nearly 25 percent more than Sir Keir. Tony Blair won more seats in 1997 (419) than Keir Starmer in 2024 (411).

The Tories, led by Rishi Sunak, secured 23.7 percent of the poll with 6.82 million votes. So, if I may say so, my prediction that Labour’s consistent 20 percent lead in the opinion polls would erode come the day was correct – it was in fact just ten percent. The Tories were not obliterated and now form HM Opposition. But consider that Mr Sunak secured less than half the votes won by Sir John Major in April 1992 when the Tories got 14.09 million votes – their highest poll ever. It has been downhill for the Tories ever since.

If the Conservative Party is going to survive as a viable political brand it is going to have to think deeply about what conservatism actually is. In the immediate future, they will have to consider how to solve the Farage problem. In a parallel universe where all the votes of the British right-of-centre were combined Mr Sunak is back in Number Ten today having secured over 38 percent of the vote.

While there is likely to be much discussion going forward about the utility of Britain’s first-past-the-post electoral system, it is of note that the Liberal Democrats’ 72 seats were roughly proportional to their 12.2 percent of the votes. Reform UK, which polled about half a million more votes than the Lib Dems secured just five seats. Some form of proportional representation – such as the Additional Member System (AMS) which is used for elections for the Scottish Parliament and the Welsh Senedd – would have given Farage & Co. about 94 seats. If the Tories and Reform must do a deal (which is highly uncertain right now) it will be interesting to see where they land on the issue of electoral reform.

Appearances can be deceiving. This was a historic Labour victory, but devoid of emphatic public support for Sir Keir Starmer, the Labour Party or its policy offer. The veteran economist Anatole Kaletsky thinks that there will be an economic and political crisis as early as one year into the new parliament as the new government proves unable to deliver the promised uplift in productivity, growth and living standards.

For my part, I’m still wishing the new PM the very best of British luck.