French Election Overview and Potential Euro Impact

For several months now, financial markets have harbored increasing concerns over the future political direction of the European Union’s member-nations. Chief among these concerns has been the rise of intense nationalist sentiment led by often-charismatic leaders with distinctly anti-globalist views. Perhaps nowhere have these worries been more keenly felt recently than in France, where the upcoming election will present a pivotal test of European unity.

The strong wave of political and economic nationalism in Europe has recently appeared to grip individual nations on the continent – as it already has to a certain degree in the US under the Trump Administration – posing a threat to the very core of the EU’s existence. Of course, the UK’s earlier decision to separate from the EU (Brexit) had already struck a significant blow to the long-term viability of the European Union. The question then became, how many more member-nations would need to abandon membership before the potential dissolution of the EU would eventually result.

Though seemingly a rather distant prospect at the current time, such an outcome would unquestionably have far-reaching implications for the potentially impacted economies and financial markets, particularly with respect to the euro currency and European equities. With any such threat to the integrity of the European Union will inevitably come grave concerns over fragmented trade and economic agreements as well as the sustainability of the common currency that is currently shared by 19 EU countries in the Eurozone.

Recent Dutch Election

Prior to the upcoming French election, the recent Dutch election in March was also characterized by intense right-wing opposition. Geert Wilders, Dutch leader of the Party for Freedom and a populist politician known for his anti-Islam and anti-EU views, lost to the incumbent Prime Minister Mark Rutte. Though this was a disappointment for Wilders, who had previously been polling in first place, the fact that his party secured enough gains to reach the second-highest number of seats (at 20) in the House of Representatives displayed the substantial popularity of his party’s campaign and agenda.

Upcoming French Election

The French presidential election process kicks off on April 23rd, when the first round of voting will be held. If the results of that round fail to show a majority winner, the election progresses to a second round scheduled for May 7th. The ultimate winner will then follow one-term incumbent Francois Hollande to become the next French President. While there are five major candidates and a handful of minor candidates currently in the running, the clear front-runners have been whittled down to three primary contenders – independent pro-EU candidate Emmanuel Macron, nationalist anti-EU candidate Marine Le Pen of the National Front party, and Francois Fillon of the center-right Republicans.

It is primarily Le Pen’s performance in the election that will arguably have the greatest potential impact on European markets and the euro. Boldly summing-up her view on the EU recently, Le Pen proclaimed at a rally that “the European Union will die,” and that “the time has come to defeat the globalists.” Clearly, a Le Pen victory does not bode well for the continued viability of the EU or the euro.

Much of Le Pen’s appeal with French voters stems from the perception that her agenda will be better-suited than others to combat high levels of French unemployment and immigration. Whether this is true or not, the main driver of that agenda would be an aggressive push under a Le Pen government for France to leave the European Union and end its use of the euro. With France and Germany continuing to prevail as the EU’s core anchor nations, this so-called “Frexit” potential could conceivably lead to others abandoning the bloc, and an eventual collapse of both the EU and the shared currency.

The Front-Runners

EMMANUEL MACRON – The youngest of the three front-runners at only 39, Emmanuel Macron has most recently been favored as the likely winner of the election’s second round, according to ongoing polling. Macron was formerly both an investment banker and a member of the Socialist Party, the party of the current and outgoing President Francois Hollande. Most recently, Macron was Minister of the Economy, Industry and Digital Affairs for the French government before resigning last year to run for President. In doing so, Macron subsequently founded an independent party/movement he dubbed “En Marche!” under which he continues to identify his campaign.

Macron has aimed to escape the division between the left and right by creating his own independent movement. Though he is often classified as a centrist, his political history has skewed further towards the left. Key among his positions is his singular support for the existence and expansion of both the European Union and Eurozone. He also supports a liberal open-door policy for refugees and immigrants.

MARINE LE PEN – The candidate who has single-handedly sparked global concern about the future of the EU and euro through her popular candidacy, Marine Le Pen is a former attorney and current leader of the National Front party. This far-right nationalist party was originally led by her father for decades after its inception in 1972. A Member of European Parliament, Le Pen ran for president once before, during the last election in 2012, but finished well behind current President Francois Hollande and then-incumbent President Nicolas Sarkozy.

The National Front’s staunch anti-EU, anti-euro, and anti-immigration stances are among Le Pen’s most prominent political positions. Correspondingly, she also opposes free trade and globalization, and has been classified as a steadfast protectionist. Aside from aggressively pushing for a French referendum to leave the EU, Le Pen has also heavily criticized France’s use of the euro. Additionally, she opposes French participation in intergovernmental organizations like NATO, the World Trade Organization, and the International Monetary Fund.

FRANCOIS FILLON – The former French Prime Minister under President Nicolas Sarkozy from 2007-2012, Francois Fillon is the presidential nominee of the Republicans, France’s primary center-right political party. As a conservative candidate, Fillon led in polling for the last two months of last year, ahead of Le Pen, but began to fall from grace during the first few weeks of 2017. This fall was due to a prominent series of allegations that Fillon used a substantial amount of public funds to pay his wife and children over the span of several years for allegedly fictitious work. Despite these serious accusations, Fillon decided not to drop his bid for the presidency. The scandal has dealt a massive blow to Fillon’s previous popularity.

Fillon’s position on the European Union and euro are more mixed than those of his major opponents. He does not advocate an end to French membership in the bloc, but he has promised substantial reforms to both EU policies and the euro. For these issues, at least, Fillon is considered somewhat of a middle ground between Le Pen’s far-right views and Macron’s centrist but left-leaning tendencies.

Campaign Standings

Earlier in the campaigning, shortly after Donald Trump pulled out a surprise victory in November’s US presidential election, Fillon and Le Pen led substantially in the polls and were essentially embroiled in a two-way race. After the first several weeks of 2017, however, scandalous allegations emerged that Fillon’s wife Penelope was paid a large sum of public tax money as salary over several years by Fillon, without evidence of her having done any legitimate work. This revelation dealt a severe blow to Fillon’s campaign, paving the way for the further rise of Emmanuel Macron – a liberal independent, former Socialist Party member, and EU-supporter. As Fillon fell from grace, Macron moved up to trail only Le Pen in public polling.

In March, Macron’s momentum accelerated, which was further fueled by a fiery televised debate among the candidates. From around that time, Macron moved up in the polls to rival Le Pen and even take on a modest lead. As it has recently stood, polls have indicated a tight and virtually tied race in the first round of voting, but an ultimate victory potentially for Macron in the second round. However, as we have all seen in recent history – from the UK’s EU referendum to the US presidential election last year – polls can and will often be less than accurate, or even sometimes just plain wrong.

To make matters even more uncertain, a very substantial segment of polled French voters recently has continued to indicate that they remain undecided or could change their vote.

Candidate Debates

The second major televised debate occurred on April 4th. Like the first debate, this one was exceptionally heated, featuring aggressive confrontation from all sides. In the second debate, the three front-runners – Macron, Le Pen, and Fillon – not only had to scuffle with each other, but were also forced to fend off stinging verbal attacks from the six minor candidates who have little to no chance of securing victory. When the dust settled, Macron was seen as having the best political program and the second most convincing debate performance, beating out the other two front-runners, Fillon and Le Pen. This has likely further propelled Macron’s chances of winning the crucial second round of the election.

Market Impacts

Whichever candidate may ultimately prevail, the market impact of the French election will undoubtedly be highly significant, particularly with respect to the euro currency. Between Macron’s pro-EU stance and Le Pen’s strong anti-EU position, volatile market swings may very well result, depending on the election outcome. Though Macron currently may appear to be in a good position to secure the ultimate victory, there is still much time ahead for many more surprise developments before the actual voting begins.

Most recently, the euro has been falling against many of its major currency counterparts, including the US dollar. Some of this weakness can be attributed to concerns about the French election and its potential impact on the future of the EU and euro. As the election’s first round approaches, impact on the euro is likely to be magnified, especially if Le Pen increasingly poses a strong threat to Macron. In this scenario, the euro could undergo even more intense pressure. If, however, Macron continues to be comfortably favored to win the overall election and/or Fillon makes up significantly for lost ground, pressure on the euro could be alleviated and a relief rally for the shared currency would likely result.