(Bloomberg) -- Left-leaning political parties in France sealed an alliance to join forces in the upcoming legislative election, with polls showing it can win the second-biggest bloc behind Marine Le Pen’s National Rally.

Parties including the Greens, Socialists, Communists and leftist firebrand Jean-Luc Melenchon’s France Unbowed agreed they would only field one candidate in each of the 577 districts for the first round of voting June 30. 

“There was an expectation of union expressed,” the Socialist Party said in a statement late Thursday. “It is sealed.”

The agreement is a further blow to President Emmanuel Macron’s chances of emerging from the elections with a firmer grip on government and centrist forces in parliament. His campaign had made overtures to the Socialists, whose government Macron served in during the presidency of Francois Hollande.

Macron dissolved the National Assembly on Sunday and announced a two-round legislative ballot on June 30 and July 7. This came after his political group was trounced by National Rally in European Parliament elections.

The move spooked investors as the vote raises uncertainty over how the next government will address France’s public finances. French bonds tumbled, driving yields over safer German peers to the highest level in seven years amid the political chaos. 

French equity markets were also hit, with the CAC 40 index falling 2%, putting it on track for its worst week in nearly a year. Banks fell the most, with Societe Generale SA down 12% and BNP Paribas SA down 10% on the week.

The new leftist alliance will have to overcome significant divisions between its members, notably over military support for Ukraine and Melenchon’s refusal to consider Hamas a terrorist organization.

On economic policy, France Unbowed also has much more radical proposals than the Socialists. In its European election campaign, the party’s pledges included abolishing fiscal rules and obliging the European Central Bank to break with its inflation mandate and directly finance governments.

The prospect of the far-left getting a sway over policy has rattled investors in the past. When polls in 2017 showed the presidential election could end up as a head-to-head between Le Pen and Melenchon, French debt sold off sharply, quadrupling its premium over safer German peers in a matter of months.

Still, the compromise program of the leftist alliance is not yet clear, neither is the degree to which it could implement its policies in the new parliament.

Speaking in an interview on TF1 as the news broke Thursday, Hollande said comments made recently by Melenchon would exclude the far-left leader from serving in a government.

The former Socialist president said he didn’t know the details of the agreement but it must be pro-European, in favor of France remaining in NATO, and call for peace in Gaza while recognizing the Hamas terror attack. He said it will also be necessary to have measures on housing and support for real incomes, while remaining credible.

“The essential thing is that unity was possible,” Hollande said. “A time comes when we have to move beyond our differences.” 

Speaking earlier, the current Prime Minister Gabriel Attal said it was “shameful” that the Socialist Party — where he began his political career — had entered a pact with France Unbowed.

“I’m calling on left, social-democratic voters, and there are a lot of them, who don’t identify with the France Unbowed program to support our candidates,” Attal said.

Meanwhile, France’s conservative and right-wing parties are struggling to forge a united front in the elections. The Republicans are locked in bitter infighting as most of the party’s senior members are trying to expel their president, Eric Ciotti, after he announced a pact with National Rally. He refuses to step down and is appealing at the Paris tribunal.

And Marion Marechal, the vice president of the nationalist Reconquest party, was expelled late Wednesday, after she, too, sought to form a coalition with Le Pen, who is also her aunt. 

--With assistance from James Hirai and Samy Adghirni.

(Updates with comments from former Socialist President Francois Hollande in 14th paragraph.)

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