There are just 18 days to go until the first round of voting in the French Presidential election of 2017.
The latest opinion polls show that no candidate from a crowded field will win outright in the first contest on Sunday, April 23. Despite only ranking fourth in a post-debate poll of viewers the first round will deliver a tight fight for top spot between Emmanuel Macron of the new party,
En Marche! and the far-right Marine Le Pen of the Front National.
Source: Polling Agencies
The opinion polls suggest a result in the first round that will see the top two positions fall in favour of Marine Le Pen and Emmanuel Macron. I fully expect Le Pen to win the first round, although her margin of victory is unlikely to be as resounding as was expected even just last month when she held a 4% lead over her left of centre rival.
She will have to be on top form in the next 18 days if she is to withstand the attacks from the left and the centre. She will have to land political punches by attacking Macron for offering nothing more than insipid bromides.
The flow of opinion implies Macron and Le Pen will run against each other in a straight fight to be settled in the second round on Sunday, May 7. In such a scenario, the polls suggest Macron is widely expected to take a convincing victory.
The two candidates agree on almost nothing when it comes to the relationship France has with Europe. Macron wants a more centralised Europe and seeks to strengthen the euro whereas Le Pen aims to pull France out of both the euro and the wider European Union.
It makes intuitive sense that Le Pen cannot possibly win for the range of opposition to her party and all it represents would galvanise the supporters of all other parties even if En Marche! is not their natural place of allegiance. Rather Macron than be duped by Le Pen’s
ad hominem argument.
It would be reminiscent of the election in 2002 when the runoff round saw Jacques Chirac of the RPR, Rassemblement pour la République or Rally for the Republic convincingly defeat Jean-Marie Le Pen (Marine’s father) of the Front National by 82.2% to 17.8%.
Then as now, Le Pen's political party, Front National, described itself as mainstream conservative, but non-partisan observers largely agreed in defining it as a far right or ultra-nationalist party. As a result, almost all French political parties called for their supporters to vote against Le Pen, including the Socialists and many that had previously been opposed to Chirac. Chirac thus went on to win the biggest landslide in a French presidential election. It looks like another centrist, albeit a left-leaning one, will again defeat a candidate of the far right.
The polls and pundits don't always get it right. Photo: Shutterstock
Potential pain is (Le) pending
However, following the surprising vote in the UK for Brexit on June 23 and the November 8 election of Donald Trump in the US, many are sceptical of the polls.
This presidential campaign has already delivered a few surprises and a Le Pen presidency is at least seen as possible. Such a prospect has struck fear into French financial assets.
Source: Agence France Trésor, NYSE Euronext Paris, Bőrse Frankfurt, CNBC
The split panel above shows that the front end of the French debt market widened considerably over Germany and the credit default swap spread also pressed higher when it seemed Le Pen was in with more than an outside chance of victory in May.
The Cac40 has underperformed the Dax to the extent of the Dax/Cac ratio rising from 2.07x when Francois Hollande was elected in 2012 to 2.41x at the end of Q1 2017. The market in French assets has calmed down as a Macron victory in May appears the more likely scenario, however, the reaction so far would be mild compared to how it would react if she actually pulled off the unthinkable.
The advent of a president Le Pen would be a hammer blow to the European project and French...and arguably wider financial markets would be plunged into turmoil with only German assets representing a safe haven in the Eurozone. The euro would crash to parity with the dollar and Europe would brace itself for a new era of anti-establishment insurgency. Even sterling and UK assets may enjoy a new influx on investment as a “European” alternative to the Eurozone.
Macron is not so ideal either
If May 7 were to see, as I expect, a convincing victory for Macron,the markets would in the short-run breathe a sigh of relief. He is perceived as a centrist, pro-European political champion.
Such a result would be welded together with the defeat of Geert Wilders in recent Dutch elections, and allow a quick inference that the threat to the European project was limited to Brexit.
I believe the unprecedented prospect of a Macron victory will present a genuine political problem as he is a centrist without a major party powerbase or structure. How will he cope with the National Assembly as he peddles his snake-oil third-way message?
He is ploughing a policy furrow that is flawed because it promises too much to too many. He has called for cutting costs and bureaucracy but rather than save state expenditure, he would boost state hiring, and promote investment in what he called the economy of the future with the central government having a large leviathan level of leverage.
It is right that Macron has been subject to frequent criticism as his policy message is lightweight...i.e. he is being vague. He may have broken away from the Socialist Party, but he is still of the centre-left and as such is nothing more than a political pharisee.
Try as he does, he cannot escape the vague tar brush as just last month he was still suggesting he will reduce labour costs but boost take-home pay through reductions in payroll taxes. Forget keeping the budget deficit under control as he also intends to retain retirement age and there will be reduction in the level of state pensions.
He has proposed reducing class sizes, give more independence to schools, and subsidise access to more culture for young people. So, spend...spend and spend some more. In short, the political pabulum to be expected of a socialist at heart.
The market for French assets will soar if he is pulling ahead in the polls leading to the May election, but the fact is he is not going to be the free-market radical that Fillon could have been.
But the markets are a great game and so I too will buy France for a short-term ride if he is seen as cruising comfortably to the Élysée Palace as a winner. However, one must be ready to drop the Cac, OAT’s and even the euro when it is realised the vague Macron message that promises something for everyone will soon prove that France is nothing more than the least worst economy...not the second best. Once more the nation that claims to be a leader, but one that cannot control its own finances.
I could not back Le Pen, but that implies there will be no radical shake-up for France or Europe. Sadly the Presidency of Emmanuel Macron will prove every part as ineffective as that of François Hollande.
France could have plenty of cheer...in the short term that is. Photo: Shutterstock
— Edited by Martin O'RourkeStephen Pope is managing partner at Spotlight Ideas