‘The French political landscape has been fully reconfigured’
Asset News: Have elections become more unpredictable than before for markets?
Philippe Waechter: We need to look at the Franco-French context here. The polls we have seen for the French presidential election of 2017 were very precise on the outcomes of the election’s first and second rounds. The quality of these polls is something very different in comparison to US or British polls. Excluding 2002 when socialist Lionel Jospin did not qualify for the second round, poll institutes in France have been rather pertinent. At the start of 2017, a pool reported by Bloomberg had temporarily shaken the markets by projecting a second round between the far-left candidate Jean-Luc Mélenchon and his far-right rival Marine Le Pen. This did not last but it had a strong impact on financial markets as well as on spreads between French and German government bond rates. The market will only have more clarity as from the start of 2022. Currently, vagueness persists as to candidates and manifestos from different sides.
Does the Covid-19 pandemic make the analysis of the political sphere more complex with the election in sight?
It is inevitably complicating the analysis, in particular for the outgoing president. Hitherto, the collective sentiment in France is that the government has not really succeeded in its management of the pandemic. Yet, since two weeks, the government ramps up efforts on the jab campaign. The aim is to vaccinate fast for the health crisis to no longer monopolise the thoughts of French individuals once they will go back from summer holidays. If it works, the understanding of the health crisis will be very different and the candidate president will be able to take pride in it and run his campaign on the basis of this success. If it does not, his campaign will struggle to take off and the management of the health crisis will be used by his opponents. The few weeks before the summer break are therefore important in terms of how the election campaign will unfold.
The Covid-19 outbreak is inevitably complicating the analysis, in particular for the outgoing president.
But if Macron chooses to run for a second mandate, is he not struggling already in his campaign because of the image he reflects to a part of the French population?
He blurred lines in 2017 and continues to do so. The French political landscape has been fully reconfigured. The left no longer appears capable of bringing together a majority of French people as polls suggest, the so-called Republican right is torn between supporting the outgoing president, who is pursuing a centre-right policy, and a rapprochement with the far right, which is the other strong pole in the upcoming elections. There is a lot of agitation, especially on the right, but no personality has spontaneously imposed itself as Nicolas Sarkozy [former French president from 2007 to 2012, defeated in 2012 by François Hollande, Ed.] did in other times.
If Macron succeeds in managing the pandemic, he will be unassailable. This will not prevent criticism of what has been done elsewhere. Critics will concern the abolition of the wealth tax, which was a strong choice, and also the modification of certain aids such as the personalised housing assistance APL. The “premier de cordée” [French expression previously used by Macron to design leaders among French population, Ed.] will have to justify itself. The climate issue will also be discussed because the climate law that has been recently submitted to French MPs does not meet unanimous support.
Shall markets fear about the French far right regularly qualifying for the second round of the presidential election?
I do fear that a dual between centre-right and far-right will linger over time. This shift to the right is a trend that is observed in countries with an ageing population. It explains the importance of security issues. Far right means withdrawal into yourself, security arguments. It would be a shame to move from a society that has been open for several decades to a society that is withdrawn info itself.
What is the risk for markets if Le Pen comes to power? Some say the shock would be lower than it would have been in 2017.
The risk of France leaving the eurozone persists even if Marine Le Pen officially no longer wishes to leave it. If she comes to power, she will most likely implement measures that do not respect the European legislative framework. She would then indicate that she cannot implement the programme for which she was elected, forcing France to leave the eurozone.
Drawing parallels with Brexit is nonsense, as France is much more involved in European integration than the UK, which has only been involved at its fingertips. An exit from the eurozone would cause its end.
The risk of France leaving the eurozone persists even if Marine Le Pen officially no longer wishes to leave it.
Do you believe a candidate could emerge from outside the system for 2022?
Emmanuel Macron did not emerge from nowhere. He was known in authorised circles and bypassed François Hollande because he did not believe him capable of holding a second term. I am not sure that this type of defiance will be found in the Macron government. Who would have the capacity to do it? It is too early to imagine a similar scenario. On the left, the potential candidates are those of 2017 and on the right, each candidate is seeking legitimacy at the risk of creating cacophony.
Before the 2022 election, there will be the German elections in September 2021, what will be the impact for Europe and France?
The September elections will probably remove the CDU from the German leadership. The markets are expecting a green prime minister. But the break is expected because Angela Merkel is leaving anyway. This will change the balance and nature of the Franco-German couple. Perhaps this will lead Emmanuel Macron to green his record and his campaign. The French presidential campaign will then perhaps be conditioned in part by whoever the new German chancellor might be.