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Macron Is Still Banking On Socialists to Break France’s Gridlock

(French National Assembly)

(Bloomberg) -- French President Emmanuel Macron is looking to join forces with the Socialist party, a strategy that would split a large left-wing coalition in the National Assembly and potentially return enough power to centrists to be able to break the country’s political gridlock.  

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Outgoing Defense Minister Sebastien Lecornu, a close ally of the president, on Thursday called for an alliance with the Socialist Party. At the moment, the Socialists are part of a large left wing group that also includes the radical far-left France Unbowed, which is fiercely opposed to any cooperation with the Macron’s centrist party.

“We have to do everything we can to separate the Socialists from France Unbowed,” Lecornu said in an interview with RTL radio. “It’s a matter of urgency.”

The French president is due to make a statement at 8 p.m. on Thursday.

Macron has pushed the idea of an alliance with the left-wing group before, without any success, but the idea is gaining momentum again since France’s government collapsed on Wednesday. The problem is that there are few incentives for the Socialists to help an unpopular president — France is most likely heading for another parliamentary election next summer and Socialist officials worry that they would be punished by voters if they allied with Macron. 

France has been in a political limbo since Macron called a snap national vote in June after getting trounced in European elections. That left the lower house split into three fiercely opposed blocs: a diminished center supporting the president, a leftist alliance and a strengthened National Rally, led by Marine Le Pen, which is now the biggest party in parliament.

Her lawmakers, together with the left-wing New Popular Front coalition, have enough seats to bring down the government, as they did to the administration of Prime Minister Michel Barnier on Wednesday. As long as the NPF stands together and is committed to blocking Macron’s policies, Le Pen and her lawmakers will have the ability to topple the government.

Macron’s centrist alliance could, in theory, govern with the support of the Socialists and the Greens without needing addition backing from the center right. But so far, he’s failed to drive a wedge between the Socialists and their more radical partners, despite their constant bickering. 

With Barnier’s ouster widely priced in, French bonds and the euro were unrattled by the vote, with the 10-year yield ticking lower and the common currency trading little changed. The extra yield investors demand to hold French debt rather than safer German notes declined to 81 basis points.

A caretaker government will be able to pass a special fiscal-continuity law that would enable the state to collect taxes and pay salaries. That would effectively cap spending at 2024 levels, offering some short term support to the public finances. 

The French debt office on Thursday sold €4.6 billion of 15- to 50-year bonds, slightly below the €5 billion upper end of their target. But the auction still received solid demand, another sign that latest political ructions have not deterred investors.

Macron is in the process of finding a new prime minister who can pass a 2025 budget through the deeply divided parliament. But any new leader will face the same financial squeeze that brought down Barnier’s administration.

Lecornu, who has been cited as a potential prime minister, said the decision of teaming up with the Socialists is up to Macron, and he stressed that the topic hasn’t been discussed while they two were visiting Saudi Arabia earlier this week.

--With assistance from Tom Fevrier and Ania Nussbaum.

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