The far-right party in France is predicted to win in the first round of elections.

• According to French polls, the far right is predicted to win the first phase of the parliamentary elections.
• The move away from centrist politics has caused concern among investors and analysts, with potential consequences ranging from "political stagnation" to "immediate economic turmoil."
• The clarity of France's voting system outcome is diminished due to its complexity.

The far right is poised to win in the first phase of France's upcoming snap parliamentary election, which is set to take place in just a few days.

According to Elabe's latest opinion polls, Marine Le Pen's National Rally and its allies are projected to receive 36% of votes, indicating a growing preference for the party's euroskeptic and anti-immigration stance.

As of June 27, the left-wing New Popular Front is projected to receive 27% of the support, while President Emmanuel Macron's Renaissance party is predicted to secure 20% of the votes.

The move away from centrist politics has caused concern among investors and analysts, who predict potential consequences such as "political stagnation" and "immediate economic turmoil."

The outcome of France's final vote on July 7 is uncertain due to the intricacy of France's voting system.

The likelihood of a far-right French victory and its impact on markets is examined by CNBC.

A complex system

In France's two-stage voting system, parliamentary candidates who receive at least 12.5% of locally registered voters advance to the second round runoff. The National Rally is expected to achieve this in many constituencies.

Despite making significant progress in the initial stage, the party may still face obstacles in the end due to voters employing "le vote utile" to thwart their efforts.

The surprise vote called by French leader Emmanuel Macron following the National Rally's 31.3% gain in the European Parliament elections was seen as part of his gamble to discredit his competitors ahead of the 2027 presidential election. Some say Macron hopes to create a sense of civil war if either extreme wins.

The national election is expected to have a larger voter turnout than the 51% who voted in the EU election, resulting in a more representative outcome.

The National Rally has a 30% to 40% chance of winning an absolute majority in the 577-seat National Assembly with 289 seats.

It is possible that the National Rally could become the largest party in France, but they may not have enough seats to form a majority government, resulting in a hung parliament.

Market turmoil

A stalemate in France could result in lower trend growth, higher yield spreads, and a negative global reputation, according to Holgier Schmieding, chief economist at Berenberg Bank, who spoke to CNBC Monday.

Since the vote on June 9, France's CAC 40 index has lost up to 6% and is on track for its worst month since May 2023. Additionally, the spread between French and German borrowing costs has increased to its widest in over a decade, indicating a rise in French political risk.

An ultraleft or far-right alliance with a majority government could result in a more dramatic outcome.

An "immediate financial crisis" could result from either party's "spendthrift agendas," which both involve lowering the retirement age and cutting income tax, according to Schmieding.

French equity valuations could drop by 5% to 20% if markets are too optimistic about a benign outcome, according to Citi analysts in a note on Thursday.

Our research shows that French equities are more volatile than peers' around elections, which could lead to further volatility, the analysts noted.

Political paralysis

Euronext's CEO stated that neither the left nor the right could implement their extreme policies due to checks and balances from the president, ratings agencies, and the EU.

On Monday, Jordan Bardella, Le Pen's 28-year-old protégé who could potentially become prime minister under a strong showing for the National Rally, was seen distancing himself from some more extreme measures, pledging to implement "reasonable" spending plans. Specifically, he aims to bring France's deficit back to the EU limit of 3% of GDP.

Despite having more measured fiscal plans, a parliamentary gridlock could make it challenging to implement them. Bardella has recently emphasized that he requires an absolute majority to govern in order to increase his support.

According to Jefferies' chief financial economist for Europe, Mohit Kumar, France is facing a significant issue due to its 5.5% deficit and 110% debt, which makes it unable to reduce deficits for the next three years.

If the National Rally fails to win support for its key plans, it could result in "political paralysis," as warned by Kumar.

Le Pen is unlikely to abandon her far-right, anti-immigration stance, which would be unacceptable to an expanded alliance of ultraleft parliamentarians. On the other hand, the center has opposed the right's crime and security proposals.

While Le Pen may maintain her hardline stance on certain issues, she may also be open to moderating her position on EU coordination and fiscal policy, similar to Italy's nationalist Prime Minister Giorgia Meloni, who has demonstrated successful cooperation with pro-EU leaders.

"Kumar believes that Le Pen has become less Euroskeptic and more like Meloni in terms of their views."

Schmieding believed that Le Pen could become more moderate if elected, suggesting that she might adopt a Meloni-like approach to secure the 2027 French presidency.