French presidential election: Macron against Le Pen

Macron in polling position

The first round of the French presidential election delivered few headline-level surprises, although there were some notable changes further down the results table. Macron and Le Pen both got a bigger share of the vote than in 2017 (24% and 21.3%, respectively), broadly in line with what opinion polls had been predicting in recent weeks. So, unsurprisingly, the April 24 vote is set to be a replay of the 2017 game between the two.

That said, the overall results reveal that the political realignment in France shows no signs of slowing down. Far-left candidate Jean-Luc Mélenchon came third, nearly eliminating Le Pen from the race. And the far-right candidate Eric Zemmour, who had seen his support melt in recent weeks, still sounded around 7%. The candidates of the two traditional parties, Valérie Pécresse (LR) and Anne Hidalgo (PS), saw their vote collapse, collecting only 6.5% cumulatively. This means that more than half of French voters chose a candidate from what could be described as the extremes of the political spectrum. So even if Macron is expected to win a second term, he does not enjoy wide support, which means his task will be more difficult than it was in 2017.

National and international policy continuity
For investors, attention will remain focused on what this election means for the French economy and, importantly, the broader political dynamics in Europe. Implementing their policies will be difficult – for whoever wins the presidency – given the likely fragmented state of parliament. But a victory for Macron indicates continuity. The president will be keen to continue his reform program, in particular by tackling pensions. We should also anticipate further fiscal consolidation efforts, with a focus on public sector reform. However, for the national economy, policy changes would, in our view, be piecemeal and marginal.

Perhaps the most important question for investors will be how the election results will affect Europe as a whole. A victory for Macron would be welcomed by other European leaders keen to push forward change and integration. The reform of the Eurozone fiscal rules, with the Stability and Growth Pact due to return later this year (although it is likely to be delayed again), will be closely watched. With Macron’s support, the reform should foster a more gradual path of fiscal consolidation which, all else equal, would be supportive of growth and investment, particularly in areas such as decarbonization and digital technologies. .

What would a victory for Le Pen mean for the economy and the markets?
Opinion polls suggest that a victory for Le Pen is unlikely, but as we have made clear above, it is not a foregone conclusion. Le Pen has done much to reinvent his party over the past five years, focusing on issues that, economically, are closer to the hearts of French blue-collar voters. Basically, pursuing an exit from the euro and the EU is no longer her goal, although she would probably argue for EU-level reform that would point to a looser union, not a tighter one. Success here (or lack thereof), however, is not something investors will focus on; the mere fact that further integration at European level would be suspended would suffice to change perceptions.

Economically, Le Pen campaigned on policies that would favor tax cuts for low earners, no reform of public sector jobs, and no reform of pensions (meaning that the current retirement age would remain unchanged). Such policies would likely mean that France would run larger deficits for longer, worsening an already difficult debt situation. Market reaction to a Le Pen victory is hard to predict, but unlikely to be as dramatic as it might have been had she implemented her 2017 policy of leaving the euro. . Spreads on French government bonds rose ahead of the first-round vote, and they could rise if Le Pen wins on April 24. But legislating would probably be difficult for Le Pen. In our view, the most likely outcome would be policy stability both domestically and internationally for an extended period.

To find out more, please see this report: French presidential election: Macron against Le Pen, published on April 11, 2022

Main contributor: Dean Turner

This content is a product of the Chief Investment Office of UBS.

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