France’s far right looks headed for victory in the first round at the polls. Here’s what that means

With just days to go until France’s snap parliamentary election kicks off, victory for the far right looks increasingly likely in the first phase of the two-stage runoff.

Marine Le Pen’s National Rally and its allies are seen winning 36% of votes, signaling growing support for the party’s euroskeptic, anti-immigration agenda, according to the latest opinion polls from Elabe released ahead of the first vote on June 30.

The left-wing New Popular Front, meanwhile, is projected behind with 27%, while President Emmanuel Macron’s Renaissance party is predicted to clinch 20% of the support, as of June 27.

The shift away from centrist politics has spooked investors and analysts, who warn of implications ranging from “political paralysis” to “immediate financial crisis.”

But predicting the outcome of France’s final vote on July 7 is less clear cut, given the complexity of France’s voting system.

CNBC takes a look at the likelihood of a far-right French victory and the impact for markets.

Under France’s two-stage voting system, all parliamentary candidates who receive at least 12.5% of locally registered voters progress to the second-round runoff — a feat that the National Rally is likely to achieve in a large number of constituencies.

But even with sweeping gains in the first round, the party could be stumped at the final hurdle by voters using “le vote utile” — or tactical voting — to keep them out.

That was seen as part of Macron’s gamble when the French leader called the surprise vote following the National Rally’s record 31.3% gain in this month’s European Parliament elections. Others say the president hopes to discredit his competitors ahead of France’s 2027 presidential election, with Macron since claiming there will be “civil war” if either extreme wins.

Already, France’s blue-chip CAC 40 index is heading for its worst month since May 2023, having lost as much as 6% since the vote was announced on June 9. The spread between French and German borrowing costs — a key indicator of French political risk — has also jumped to its widest in more than a decade.

“Combined with our finding that French equities tend to be more volatile than peers’ around elections, this could be reason to expect additional choppiness from here,” the analysts noted.

The CEO of Paris-based Euronext, Europe’s biggest stock exchange group, sought to quell investor concerns earlier this week, telling the Financial Times that neither the left nor the right would be able to implement their more extreme policies amid checks and balances from the president, ratings agencies and the European Union.

On Monday, Jordan Bardella — Le Pen’s 28-year-old protege, who could become prime minister under a strong showing for the National Rally — was seen stepping back on some more extreme measures, vowing to implement “reasonable” spending plans. That includes an aim to bring France’s deficit back to the EU limit of 3% of GDP.

Even with more measured fiscal plans, however, parliamentary gridlock could make such policies difficult to enact. Bardella, for his part, has recently stressed that he would “need an absolute majority to govern,” in a bid to boost his backing.

“You start with deficit at 5.5%, debt at 110%, you’re unable to do anything for the next three years, which means that deficits are just not coming down. To me that’s the biggest issue that France faces right now,” Jefferies’ chief financial economist for Europe, Mohit Kumar, told CNBC’s “Squawk Box Europe” on Tuesday.

The same issue would likely apply across other policy areas, too, with an enlarged National Rally most likely failing to win support for many of its key plans. That, Kumar warned, would lead to “political paralysis.”

Le Pen, for instance, is unlikely to move on her far-right, anti-immigration stance — a position that would be unpalatable to an enlarged ultra-left alliance of parliamentarians. Meanwhile, the center has opposed the right’s crime and security plans.

Populist Le Pen may, however, be willing to moderate her position on other issues such as EU coordination and fiscal policy, mirroring Italy’s nationalist prime minister, Giorgia Meloni, who is often credited for her functional relations with pro-EU peers.

“[Le Pen] has been euroskeptic, but I think there is a definite toning down of views,” Kumar said. “In that respect, maybe she becomes more like Meloni.”

Schmieding agreed that Le Pen could become more moderate if elected, saying that she may channel her inner Meloni in order to secure the ultimate prize: the 2027 French presidency.

Correction: Holger Schmieding is chief economist at Berenberg Bank. An earlier version misspelled his name.