European equity investors have welcomed the positive outcome of the first French presidential election round. The more disruptive of the scenarios have been avoided, with pro-European candidate Macron in the lead to become France’s next president.
Although polls were tight, the two candidates who qualified for the second round were the two who led in the polls. The polls were not only accurate but rather precise. Emmanuel Macron won 23.8% of the votes, followed by Marine Le Pen (21.5%), François Fillon (19.9%) and Jean-Luc Mélenchon (19.6%). The turnout (78.7%) was higher than that for 2012.
These results suggest that there has been a reshuffle in the French political landscape. French politics have traditionally been dominated by two parties: the Socialist party (on the left) and Les Républicains (on the centre-right). This model has been shattered: none of the two main historical parties, which have held power since the founding of the Fifth Republic in 1958, has qualified for the second round. This outcome is a fresh illustration of a growing global trend: the divide between anti- and pro- globalization is now superimposing itself on the divide between the left and the right.
The two candidates have very different platforms, with Marine Le Pen having an anti-Europe populist far-right platform, while Emmanuel Macron is more “pro-business” and clearly pro-Europe.
Marine Le Pen’s programme envisages reinstating national borders, increasing taxation on foreign workers, putting a stop to the provision of free health care and schooling to unauthorized immigrants,… It defends and promotes “French economic patriotism” and, more generally, is anti-globalization. The Front National platform also includes some populist measures similar to those proposed by Mélenchon (notably, lowering the retirement age to 60). It envisages two referenda: the first to change the Constitution (notably by introducing a “fully” proportional system for the Lower house elections, with a 30% bonus for the leading list, and by removing Title XV, which states that “The Republic shall participate in the European Union”); the second, coming six months later, to exit the EU (and hence the euro).
Emmanuel Macron is a social liberal, leader of the En Marche (“On the Move”!) movement and the most pro-European candidate. He has a rather balanced platform. He advocates cutting corporate taxes and social contributions to reduce labour costs. He has a €50 billion, one-off, 5-year public investment spending programme and specific measures designed to increase households’ purchasing power. He also wants to introduce a Nordic-type “flex-security” model and promises to respect France’s European commitment to rebalance the government’s fiscal position.
Marine Le Pen looks very unlikely to clinch the presidency. Indeed, polls conducted right after, as well as before, the first round show Emmanuel Macron winning by a comfortable margin (60% for Macron versus 40% for Marine Le Pen). Of course, we always have to be cautious as this is an unusual election. Voting recommendations by most politicians are still pending, but many prominent members of Les Républicains as well as the Socialist party have already said they are in favour of a Macron vote.
Remember that France has a semi-presidential system: while the role of the President is much greater than in many other countries (the president is Commander-in-Chief of the Armed Forces and in charge of foreign policy), the Prime Minister and parliament oversee much of the nation's day-to-day affairs.
In the past, the Lower house elections that followed a Presidential election have usually tended to give the elected president a majority. This time, however, could be different!
The parliamentary elections are not proportional. They are based on a two-round system:
In the past, when a Le Pen candidate qualified for the second round, the Socialists and Les Républicains agreed to withdraw one candidate to ensure the defeat of the Front National.
The shattering of the French political landscape has rendered those second-round alliances much less likely, however: it could very well happen that, in many constituencies, three or even four candidates run in the second round. The positioning of Macron, of course, has contributed to this reshuffling: the Socialist party is very weak and divided and some of its members have joined or shown sympathy for En Marche; the same holds true for some Les Républicains members, although to a smaller extent.
This reshuffling of the French political landscape, but also the rise in extremist parties (Mélenchon and Le Pen) compared with the 2012 presidential election, make it very difficult to have a view today on the future composition of the Lower house, all the more so since no polls are available.
Emmanuel Macron is at risk of having to deal with a divided parliament. In that case, we think he will adopt a “conciliatory” approach, trying to get members from different parties into the government. Such a mixed government could prove favourable to the implementation of reforms (Germany, in this regard, is a case in point), but this new approach to governing has never really been fully tested in France …!
In any case, the outcome of this presidential election first round is clearly “market-friendly” as Emmanuel Macron is pro-EU, and more disruptive scenarios have been avoided.
by Florence Pisani, Global Head of Economic Research
Candriam's views on the french election