Le Pen’s tough challenge to Macron
“Never since the fall of Pétain and the return of democracy in 1945 has the farright been so close” to taking power in France, says Philippe Aghion in Les Echos. On Sunday centrist Emmanuel Macron faces far-right rival Marine Le Pen in the second round of the presidential election. In 2017, Macron beat Le Pen in a landslide, winning 66% to 34%. Since then, Le Pen has softened her image, including ditching plans to leave the euro, and their rematch will be much closer. Polls give Macron a narrow lead, close to the margin of error. Investors breathed a sigh of relief after Macron won the first round on 10 April, with the yield spread between French and German bonds retreating from a two-year high. A surprise victory for Le Pen on Sunday would cause a renewed spike in French government bond yields and create new break-up risks for the eurozone.
Focusing on the cost of living
Macron’s economic record is creditable. His labour reforms have taken unemployment to its lowest level since 2008. Tax cuts have sparked a boom in business creation and investment. Household purchasing power has risen twice as fast as other European countries over the last five years. Yet
Le Pen has climbed in the polls by focusing on rising inflation and the cost of living, says Lionel Laurent on Bloomberg. She has vowed to slash VAT on food, electricity and petrol, as well as exempting the under30s from income tax. In a strange turn of events, “a far-right candidate with ties to Vladimir Putin” is “waging a left-wing campaign with budget giveaways to soothe the financial after-effects of Putin’s war”.
Le Pen’s numbers don’t add up, says Stéphane Lauer in Le Monde. Her giveaways would mean hefty budget deficits in the order of €100bn a year, equivalent to 4% of GDP. To do that, she will need to maintain the confidence of bond markets. Yet her plans to disregard European law and undermine the single market, setting France on course for a “‘Frexit’ in all but name”, would spook the very investors she will need to finance her spending splurge. Thus a Le Pen victory could see French borrowing costs “more than double”, says Jean-François Robin of Natixis.
Get ready for round three
Still, a Le Pen victory might not be as disruptive to financial markets as widely believed, says Jeremy Warner in The Daily Telegraph. The European Central Bank would act to head off a full-scale “investment boycott” of French government bonds. Conflicts with the EU would arise, but it is possible that “some way of muddling along together will be found”. Le Pen would also face formidable domestic obstacles to pushing through her agenda.
The first of those hurdles would be the legislative elections in June (sometimes dubbed the presidential “third round”), says Kevin Thozet of asset manager Carmignac. Even if Le Pen wins the presidency, she could yet be deprived of a parliamentary majority by a “republican front” of centrist and left-wing parties in the assemblies. That would force her to “cohabit” with a prime minister from the opposition parties and see her plans watered down.