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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

France’s anti far-right alliance is on track to halt the rise of Marine Le Pen’s Rassemblement National, in a snap parliamentary election that leaves the Eurozone’s second-largest economy in limbo over its next government.

Provisional estimates from four pollsters suggest the RN, which was hoping to secure an outright majority in the National Assembly, may have been pushed into second or third place by a surge in support for the left.

The projections suggest the leftwing alliance Nouveau Front Populaire (NFP) could become the largest parliamentary force with anywhere from 170 to 215 seats, according to Ipsos, Ifop, OpinionWay and Elabe.

But President Emmanuel Macron’s centrists were running close behind, with pollsters predicting ranges of 140 to 180 seats, a big drop from the roughly 250 they held in the outgoing National Assembly.

No single bloc has come close to securing an outright parliamentary majority, according to the estimates.

The projections come after the NFP was hastily formed between the far left La France Insoumise (LFI), the centrist Parti Socialiste (PS), the Communists and Greens a month ago, to help block the RN from power.

There were gasps of horror and tears at the RN electoral party as the first results estimates came in on Sunday.

A stunned silence replaced flag waving and chants that came after last week’s first round in the parliamentary election.

Jean-Luc Mélenchon, chief of the hard left LFI, has called on Macron to offer the NFP the opportunity to form a government. “The will of the people must be strictly respected . . . The defeat of the president and his coalition is confirmed,” he said.

The polls were met with elation at the PS election event in Belleville, Paris, with chants of “front populaire” and a round of La Marseillaise.

“It’s brilliant, of course it’s brilliant,” Nicolas Mayer-Rossignol, the PS mayor of Rouen and a leading figure in the party, told the Financial Times.

The projected results suggest that the co-ordinated anti-RN strategy, under which the left and centre tactically withdrew their candidates from run-off ballots, had paid off.

After the first round, Le Pen was confidently predicting that a governing majority was within the RN’s reach.

If confirmed in final voting tallies, the projections suggest that none of the three main blocs will be able easily to command a governing majority, potentially leaving France in a period of political gridlock.

The uncertainty will have repercussions both for France and the EU, given Paris’ outsized role in influencing the bloc’s policy, together with Germany.

Financial markets had been jittery before the first round when the RN was polling strongly, but have since calmed as a hung parliament appeared more likely.

The NFP has proposed a heavy tax-and-spend economic programme, which would be a major break with Macron’s business friendly agenda and tax-cutting zeal.

In the French system, the president chooses the prime minister, who typically comes from the party with the biggest delegation in the National Assembly even if it does not have an outright majority. 

Macron could seek to cobble together a coalition of MPs from different parties on the left, centre and right, but excluding the RN and the far-left LFI.

Such an arrangement would amount to a “cohabitation”, and forging this kind of deal might prove difficult given the parties’ wide policy differences. 

A last resort would be naming a technocratic government to be led by an experienced but non-partisan figure, although this is not at all in the French political tradition. 

While the pollsters’ projections are far better than expected for Macron, his authority will still emerge weakened from the snap election.

Macron in June took a gamble in calling for the early vote after his centrist Ensemble alliance was trounced by Le Pen’s RN in European parliamentary elections.

The president defended the move, which stunned and angered many even in his own camp, as a necessary moment of “clarification”.

Bernard Sananes, head of Elabe, said: “It’s the victory of the Republican Front. Vote transfers have been excellent. Where the RN was in the second round, turnout increased.”

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

The author is vice-chair at Oliver Wyman

How will Europe fund the huge sums needed to invest in energy transition, digital infrastructure and defence? Despite a vast €33tn pool of savings, Europe has a plumbing problem. Its capital markets are under-developed, while its banking sector is insufficiently sized to handle the growing demands for capital expenditure. To address the investment conundrums, deeper capital markets are needed.

The requirement is enormous: the European Commission has estimated that the green transition requires an additional €620bn each year to 2030, with another €125bn needed for digital transformation. Moreover, Vladimir Putin’s invasion of Ukraine, and the prospect of a second Donald Trump presidency in the US, are escalating demands for greater military expenditure.

Yet despite multiple bazookas from the European Central Bank, growth in lending to companies in the region since 2014 has been less than half that of the US. The gap in economic performance between the two has long nagged at Europe’s policymakers. A widening divide makes this angst acute.

“We need to mobilise private savings on an unprecedented scale, and far beyond what the banking system can provide,” former Italian prime minister and ECB president Mario Draghi argued ahead of publication of his upcoming report on enhancing Europe’s competitiveness. 

Despite some progress, there remains a vast gap in venture capital relative to GDP between Europe and the US. European companies have fewer funding options to help them invest and grow.

There is a growing chorus of calls to dust off the unfinished plans for a capital markets union, led by ECB president Christine Lagarde. Recent heavyweight reports by former Italian Prime Minister Enrico Letta and former French central bank governor Christian Noyer also argue the case.

But the idea of a single market for capital across Europe has been stalled for a decade. Bold ideas often get bogged down.

The recent European elections are likely to make things even more difficult, so perhaps it’s time to change tactics. To clear the system-wide blockages, policy architects should team up with financial plumbers, especially from the private sector.

Revitalising securitisation is the place to start, enabling insurers and pension funds to support Europe’s growth. Securitisation allows banks to transfer assets to investors, in turn freeing up their own lending capacity. This is particularly important as banks provide the majority of credit to European small and mid-sized businesses, which account for almost two-thirds of jobs.

Rules written in response to the financial crisis harshly penalised securitisations and the European market for them has never really recovered. An unintended consequence is that banks have resorted to complex synthetic transfers of risk, which only the largest can undertake, thus holding back regional banks.

Solvency II, the rule book for insurers, makes it economically unappealing to fund a long-term infrastructure project or buy a package of small business loans too, reducing potential returns and limiting available financing.

It’s time to recalibrate securitisation rules to better reflect the true risk profile of assets, keep pace with evolving capital markets and encourage investment for European growth. Reforms to Solvency II rules are also essential, along with system-wide tweaks to the banking framework and financial market standards.

The venture capital ecosystem must be nurtured, private credit harnessed and the cumbersome sustainability rules for funds recalibrated.

Above all, Europe needs a more flexible and diversified financial market. If capital markets union plans fail to deliver it may result in lower growth. It’s time to call in the plumbers.