(Bloomberg) -- After a crushing defeat in the European Parliament election on Sunday, President Emmanuel Macron plunged France into political uncertainty with a snap legislative ballot that re-stages his perennial battle with far-right rival, Marine Le Pen.

While Macron’s position as head of state won’t be directly affected by the upcoming vote, his ability to push through legislation, the power to choose a like-minded prime minister and the credibility of his political project will all be on the line in an election that Sunday’s results suggest he’ll likely lose.  

“It’s not just a gamble, it’s audacious,” said Yves Bertoncini, an independent consultant in EU affairs. “Usually, players who make a move like this don’t have many cards left.”

The unexpected move gives Macron a final shot at defeating Le Pen before the 2027 presidential election, in which he cannot run because of term limits. She and her party have improved their score in every election since Macron came to power in 2017, and cast Sunday’s European vote as the springboard for the next presidential bid.

With limited options available, Macron may be betting that French voters will be less willing to take the risk of voting for Le Pen in a national election. Even if that backfires, three years of far-right government might expose the party’s limitations and avert a Le Pen victory in 2027.

Spanish Prime Minister Pedro Sanchez managed to salvage his government last year when he wrong-footed the opposition by triggering a snap vote in response to a heavy defeat in local elections. 

The euro fell as much as 0.5% to $1.0748 in early trading, its weakest in a month. The move pares an almost 2% rally since mid-April as traders added to bets of European Central Bank rate cuts this year.

French bonds dropped at the open with yield spread against Germany widened to more 52 basis points, a level last seen in mid-April. France’s CAC 40 stock index was down 2.2% in early trading in Paris on Monday.

The election in France will take place over two rounds beginning June 30. It’s the first time this century that the National Assembly has seen its term cut short.

“Let’s not think this is an election like any other — it’s an election with unprecedented grave consequences for our nation,” French Finance Minister Bruno Le Maire said on RTL radio Monday. 

With the European Union struggling to calibrate its response to a welter of challenges from Russia’s aggression in Ukraine to climate change and its deteriorating trade relations with China and the US, the election result highlights the increasing rejection of mainstream politics and left the credibility of the bloc’s two most important leaders in tatters. 

In Germany, the Social Democrats got just 14% of the vote, their worst-ever result in a European election, according to projections in the early hours of Monday. The main conservative opposition came first with 30% while the far-right Alternative for Germany was on track to finish second with 16%, ahead of the SPD.

Le Pen’s party claimed 31% of the vote with a rival far-right group winning about 5% and Macron’s Renaissance on 15%. The Green party was the night’s other big loser, with its representation set drop to about 52 seats in European Parliament from 71. 

In Italy, Prime Minister Giorgia Meloni was projected to solidify her power with 29% of the vote. “They saw us arriving but they couldn’t stop us,” she told supporters at her party’s election headquarter in Rome. 

The EU’s three mainstream groups are set to hold a comfortable majority: European Commission President Ursula von der Leyen’s center-right European People’s Party was due to get 184 seats, the Socialists & Democrats 139 and the Liberals 80. The two far-right groups will have about 131 seats between them. 

But it was Macron’s dramatic response to his defeat that offered the biggest surprise of the night. 

“I can’t pretend that nothing’s happened,” Macron said. “The rise of nationalists and demagogues is a danger not only for our nation, but also for our Europe, and for France’s place in Europe and the world.”

Macron’s decision was influenced by his experience at the D-Day commemorations in Normandy last week when some of the bystanders he met said that political life has become too aggressive, according to people familiar with his thinking. Macron sees the parliamentary election as a chance to change that and re-establish a stronger, moderate majority, they said, asking not to be named discussing private conversations.

The upcoming election offers Le Pen, the most durable figure on Europe’s far-right, a chance to cement a foothold on power for the first time ever. If her National Rally group confirms its position as the country’s biggest party she could have a key role in appointing the next prime minister, even if negotiations would be likely to be fraught. 

People familiar with the thinking in Macron’s inner circle insisted they aren’t worried about her managing to take control of the legislature because the far-right parties are still shy of 40%. And they said they would be comfortable governing alongside a prime minister from another mainstream party. 

But the election nevertheless means a nervous few weeks for Macron’s allies in other European capitals, and indeed anyone with a stake in France maintaining a functioning government that is able to push through policy. 

What Bloomberg Economics Says...

“The most likely outcome may be that Macron’s party and its allies lose seats but remain the largest force in parliament. This would weaken further their ability to force through some difficult structural and fiscal reforms, keeping debt sustainability in focus.”

—Eleonora Mavroeidi and Maeva Cousin. For full react, click here

It’s a move that recalls former Prime Minister David Cameron’s high-risk decision to call a vote on the UK’s EU membership in an effort to settle his own problems with right-wing populists. 

“It’s a watershed moment for Europe,” said Federica Genovese, professor of political science at Oxford University. “The surge of the far right was in the making and things are unraveling now.”

Concerns may be particularly acute in Kyiv since Macron has been pushing to send military trainers to Ukraine in a symbol of France’s deepening commitment to the fight against Russia. Le Pen’s longstanding sympathy for Vladimir Putin could put that in jeopardy. 

The EU’s von der Leyen is still favored to claim a second term as head of the commission after her center-right grouping, the EPP, won the largest number of seats. But there will be questions about her political vision after the Greens paid the price for voters’ discontent with the Green Deal, the signature policy initiative of her first term. 

The last time France held a snap parliamentary election came in 1997, when then-President Jacques Chirac called an early vote, looking for support for the changes required to qualify for the euro. The result: Chirac’s group lost its majority and he was forced to name the head of the rival Socialist Party as prime minister.

If the National Rally and other hard right parties were to repeat their performance in French parliamentary elections, Macron could be forced to name a prime minister with fundamentally different policy views than he has, about the EU, about France and about its role in the world.

“Political instability is never a good thing for Europe,” said Sophie Pornschlegel, director of research at the Jacques Delors think tank in Brussels. “In the next few months a lot of shifts will happen.”

--With assistance from Piotr Skolimowski, Matthew Burgess, Jorge Valero, Lyubov Pronina, John Ainger, Ewa Krukowska, Megan Howard, Katharina Rosskopf, Iain Rogers, Constantine Courcoulas, Zoe Schneeweiss, Dara Doyle, Alan Katz, Wout Vergauwen and James Regan.

(Updates with context in the fourth paragraph, markets in sixth)

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