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(Bloomberg) — President Emmanuel Macron’s decision three weeks ago to call snap elections overturned any semblance of political stability in France and opened the door to the possibility of the first far-right government in the modern republic. 

Not only did his call to dissolve the National Assembly shock both the public and markets — sending some risk indicators to levels last seen during the euro-area crisis — it also took Macron’s own cabinet by surprise. 

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Left unanswered was the question: Why did Macron put himself in this position if it wasn’t necessary? 

He made the decision on the night of June 9 after Marine Le Pen’s far-right National Rally got twice as many votes as his centrist coalition in the European Parliament election. Macron argued that he couldn’t ignore the results while also warning that “the rise of nationalists and demagogues” was threatening France and Europe. 

Fundamentally, Macron is forcing voters to make up their minds about whether they prefer his pro-business, pro-Europe, pro-Ukraine vision for France or Le Pen’s agenda of dramatically cutting migration, stepping back from European Union rules and undoing some of Macron’s pension reforms. 

It could put National Rally into a position where it would have to govern for the first time, creating a tangible track record ahead of the 2027 presidential election, when Macron won’t be able to run due to term limits. 

Sunday’s voting will be the first round, with runoffs on July 7. 

Here are the main issues to watch: 

Winners and Losers

As of Friday — the last day polling companies are allowed to publish projections ahead of the vote — National Rally and its allies had a strong lead, on course to get 36.2% of the vote, according to Bloomberg’s poll of polls.

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A left-wing alliance — including the Socialists, Communists, Greens and the far-left France Unbowed — was on track to get 28.3% while Macron’s centrist group was projected to get 20.4%. 

Seat Projections

First round vote shares don’t tell the full story — the decisive factor shaping the next government is the distribution of seats in the 577-member National Assembly after the second round.

While the two-round ballot makes seat predictions tricky, the National Rally and its allies are projected to become the biggest group in the lower house of parliament with between 238 and 281 members, according to Bloomberg’s final poll of polls before the blackout on Friday evening. 

When the first round results are in on Sunday, polling companies will have much more data to refine those projections. That will be crucial information for parties to set their campaign strategies, and for investors trying to assess what kind of instability is coming. 

Turnout

A significantly greater number of people are expected to cast ballots than in several prior legislative elections, according to surveys. That’s important in France’s system, because it raises the chances of more than two candidates making it to the second round, creating less predictable three- or even occasional four-way races, known as triangulaires and quadrangulaires.

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In 2022, there were only eight triangulaires. This time, the number could swell to between 160 and 200, according to a poll of 2,005 adults by Odoxa June 26-27.

The interior ministry will publish interim figures for turnout at midday and 5 p.m.

Cohabitation or minority government

Any group that is able to get an absolute majority of 289 or more seats will control the lower-house of parliament. It can easily pass laws and a government backed by that group would be safe from the threat of no-confidence votes. 

If the group that gets a majority is from a different party than the president, which has happened three times since France’s current form of republic came into effect in 1958, it results in type of power-sharing arrangement called cohabitation. The president generally selects the leader of the party that obtained the majority as prime minister. But a combination involving the National Rally would be the first time it’s involved a party that’s never governed before. 

If a group gets the most seats but is short of an absolute majority, then it could form a minority government — like Macron’s current situation. But that also depends on the president, who has sole authority to appoint a prime minister. 

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A hung parliament would make it difficult to legislate since the government would need to find extra votes outside of its party for every bill. If the government were to use a constitutional provision that allows it to bypass a vote, it would open itself up to a no-confidence vote and could be overturned if rival parties came together.

National Rally President Jordan Bardella has said he would refuse the job if his party and its allies don’t get an outright majority in the National Assembly. 

Markets

Macron’s decision to call the election triggered turmoil in markets in France, leading to an equity selloff that initially wiped almost $200 billion off the value of stocks.

The yield on 10-year government notes at one point on Friday rose to the highest since November. That widened the extra yield investors demanded for French debt over similar German government bonds to 86 basis points — the most since 2012. The benchmark CAC 40 stock index meanwhile fell to its lowest since January.

Policies

The three leading groups in the elections are proposing radically different paths for France. 

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Macron’s party stands for continuity, with more pro-business tax cuts and reforms, along with a commitment to curb spending. Responding to concerns of voters, his group has added pledges to improve the incomes of low earners by tweaking taxation, and measures to help home-buyers. 

The National Rally has promised to cut immigration, toughen France’s stance on law and order with more prison places and minimum sentencing, and cut value-added taxes on energy and fuel. Following a sell-off in French assets, the party has delayed some of its more costly measures — potentially indefinitely depending on a review of public finances.

The New Popular Front has the most radical economic program. In the short run, it says it would freeze prices of consumer staples, abolish Macron’s pension reform and raise the minimum wage 14% and public sector salaries 10%. The extra annual spending, which is forecast to reach €150 billion in 2027, would be entirely financed by taxing businesses, finance, and the wealthiest. 

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