Macron's gamble pays off, but challenges loom after snap elections

French President Emmanuel Macron, described by Bloomberg as an "inveterate gambler," has managed to secure another opportunity to lead, though the path ahead is fraught with challenges. The recent snap parliamentary elections in France have clearly rejected Marine Le Pen’s far-right National Rally but have only tepidly supported her opponents on the left and in the centre. As Macron looks to unify the Greens and Socialists, he faces a complex political landscape, suggesting that fragmented politics in France may persist.

The snap election's dramatic nature continued in its results. Macron might feel a sense of satisfaction seeing Le Pen’s party secure just 143 seats. A tactical alliance between Macron’s centrists and the left-wing Popular Front helped reinforce the “republican front,” while Le Pen’s unclear policies and inexperienced candidates hindered her party's success.

However, the situation at the top is less straightforward. Macron’s centrist bloc is expected to finish with 163 seats, still far from the 289 needed for a majority. Despite tactical voting minimizing the impact, Macron remains unpopular, even within his own party, and lacks the political capital to push through his reforms. Nevertheless, his bloc remains a potential coalition partner. The winning left-wing bloc, influenced by Jean-Luc Melenchon, won 182 seats, also short of a majority.

Macron’s role has shifted from leader to kingmaker, likely seeking a coalition with the left rather than the right. Financial markets may need to adjust their expectations: what seemed like a potential victory for the far right could turn into an opportunity for the far left, akin to the UK's Labour Party becoming more electable post-Corbyn. A coalition combining Macron’s centrists with the Greens and Socialists could approach the 289-seat threshold.

Centre-left politicians, like Raphael Glucksmann, suggest forming a parliamentary coalition that excludes both Macron and Melenchon. Francois Hollande, returning to parliament, echoed this sentiment, advising Melenchon to remain quiet for the Left’s benefit.

However, this is a risky strategy. Even if a coalition forms, it is unlikely to achieve the solid majority enjoyed by the UK’s Labour Party. Any coalition will face unprecedented political division in the Fifth Republic’s history. With France grappling with high deficits and slower growth than the euro area average, tough decisions lie ahead, including potential tax increases and limited capacity to address issues like productivity and demographic decline. Christopher Dembik of Pictet Asset Management anticipates that any coalition might dilute Macron’s reforms, affecting pensions and welfare benefits.

While the election results may provide temporary relief from the threat of right-wing populism, the future remains uncertain. With three years until the next presidential elections and Le Pen poised to challenge Macron from the opposition, France is far from political stability.