French Presidential Candidates Finalized


Chris Bailey, European Strategist, discusses the first round results of France's presidential election and the resulting influence on European markets.

In France, incumbent President François Hollande of the Socialist Party decided to not seek re-election for his second term in office. This decision opened the election to 11 new candidates who faced the first round vote on Sunday, April 23. Since no candidate won more than 50% of the vote, a runoff election will be held between the top two candidates on Sunday, May 7, 2017 to determine France's new president.

The pollsters were - for once in the last couple of years - absolutely spot-on in their first round predictions. The two candidates for the second round of the French presidential election in just under a couple of weeks’ time will be the centrist Emmanuel Macron and the populist Marine Le Pen. If the pollsters are even roughly correct in their second round analysis, in a fortnight's time we will be heralding the 39-year-old Mr. Macron as the youngest French president since Napoleon. Not too bad for a man with more experience in investment banking than politics and whose party, En Marche (“Forward” or “On the Move”), was formed only in April of last year.

With mainstream politicians of the French centre-left and centre-right lining up to endorse him, it would take a dramatic change of events for Mr. Macron not to be elected president, and this outcome – after a first-round election battle that saw populists from both the hard right and hard left polling at levels not seen before in the modern-day French republic – would be well-received by financial markets. On the first round results, the euro bounced the most that it has in 10 months, and European equities have enjoyed a positive start to the week.

Given the victory for mainstream candidates in the Dutch election earlier in the year and in the first pivotal round of the French presidential election, are Europe’s travails over? At one level, Continental Europe has stepped away from the brink with the highly likely election of Mr. Macron. A victory for Ms. Le Pen would put enormous strains on the euro and the broader European integration project – already weakened by the UK’s Brexit decision and the economically struggling southern European countries – and lead to a de facto breakup of the European Union as we know it today. Today, this risk has significantly receded – hence the aforementioned financial market moves.

However, let us not kid ourselves that Europe is in the middle of a changing political epoch. The abysmal performance of the long-established parties of the mainstream centre-left and centre-right in the French elections reflects a still-growing malaise across Europe of an electorate that simply wants more jobs, higher real wage growth, better economic growth levels, and a revival of faith in the future and the institutions that govern. For the two final candidates in the French presidential election race to just have three directly aligned members of the current French Parliament reflects this changing backdrop.

Mr. Macron is, however, not a complete neophyte; after all, he was the economy minister in outgoing President Hollande’s government until his resignation to run on his own presidential ticket. However, he will need to build a constituency – not unlike President Trump – to govern effectively and push through change and reform to have any hope of rebuilding political and economic confidence levels. This is no easy task, but at least he will not be alone in Europe facing this challenge given the aforementioned Dutch vote and the upcoming German election in September.

European assets including the euro currency remain – despite recent positive moves and inflows from the global investment community – lowly valued versus their U.S. equivalents. Further recovery in 2017 seems reasonable, but deep challenges remain for 2018 and beyond.

Being elected president is not easy… but becoming an effective president is even harder.

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