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French Presidential Election - Macron President: risks disappear... back to fundamentals

2017-03- Logo french election
2017-05-08- Header - 9

 

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The essential

 

 

The second round of the presidential election provided the name of the winner: E. Macron is the next president of the French Republic (66% of the votes). The transfer of power between F. Hollande and E. Macron will take place on May 14, at the latest. The eyes and the questions are now turned towards the legislative elections:

  • Early polls indicate that E. Macron would be the great winner of the general elections (June 11 and 18). He might be able to gain the absolute majority;
  • With E. Macron President, France would therefore go towards a parliamentary majority or, at worst, towards a coalition of government, which should not be difficult to constitute;
  • Uncertainty is lifted and we can now focus on fundamentals, which have improved significantly over the last few quarters. The specific risk on France disappears, as does the European systemic risk (Frexit);
  • We remain overweight European and French equities (vs. the United States in particular), and European corporate bonds (vs. sovereign bonds).

 

This note (the 9th in our series) has the ambition to present the stakes of the legislative elections.

 

Philippe ITHURBIDE
Global Head of Research, Strategy and Analysis

 

 

Already published

 

Emmanuel Macron President.

Given the latest polls and analyses that followed the last broadcast debate, the matter seemed to have been heard. Some figures and comments:

  • Emmanuel Macron is ahead of Marine Le Pen by more than 20 points (66.06% vs. 33.94%), which is in line with all the polls that once again did not fail. The gap between the two candidates represents more than 10 million voters (10.6 mios vs. 20.7 mios);
  • The abstention rate stood at 25.38%, significantly higher than the abstention resulting from the previous election (19.6% in 2012), and slightly above that of the first round, at 22.23%;
  • With abstention, blank and null votes, more than one French out of three did not choose between Macron and Le Pen;
  • It was the first time that the second round of a French presidential election was taking place without the traditional right and without the traditional left;
  • This is the first time that the French elect a president without a party. For those who feared the election of a populist, this remains very good news.
  • E. Macron will take office on the day of his investiture at the Elysée Palace, which may take place as soon as the election results are officially proclaimed by the Constitutional Council (May 11th) or, at the latest, the last day of the term of office of the President still in office (midnight on 14 May). The date of the transfer of power shall be fixed in consultation with the latter.

I. Who will be the next Prime Minister?

This is one of the best kept secrets. E. Macron admitted to having in mind two profiles, one man and one woman. E. Macron recalled some principles during his campaign: his prime minister must not have been a minister of any previous government, be perceived as a "new face", must have parliamentary experience, will not be from the civil society, and the fact that she is a woman would be an asset.

  • Among the possible male candidates,Jean-Yves le Drian, a socialist from Brittany with whom he is very close. But by naming him, he would not respect a rule he had set himself, that of not naming as minister one of the present ministers. Other people are mentioned, such as Francois Bayrou (not really a new head), Xavier Bertrand (not interested in this post at this time), or Bruno Le Maire (a candidate opening to right wing parties too) ... Among those who would undoubtedly be considered as new heads, we can mention Richard Ferrand, another deputy of Finistère (Brittany), or Edouard Philippe, support of Alain Juppé: his appointment would be a sign of strong opening to right-wing parties (particularly interesting ahead of general elections and prospects of coalition with a part of the non-fillonnist camp, which does not wish to be close to the themes of the extreme right (this camp did not transfer his votes to M. Le Pen in the second round of the presidential elections).
  • Along the possible female candidates: Anne-Marie Idrac, former Secretary of State for Transport under Jacques Chirac, then former Secretary of State for Foreign Trade under Nicolas Sarkozy. She is close to François Bayrou, ally of Macron, and she also has good experience in company (she is a former CEO of RATP and SNCF). Her disadventage is to have already been part of a government. Sylvie Goulard, euro-deputy, centrist, very close to the Franco-German issues (she organized the Macron-Merkel meeting during the campaign), with a ministerial experience (Quai d'Orsay - Ministry of Foreign Affairs in particular) without ever having been minister. The only (potential) disadvantage is that she never sat in the National Assembly.

The Prime Minister will lead the "preparations" for the parliamentary elections, and the fact that he is a gatherer and a trusted man of the new President is of paramount importance.

What are the next steps?

  • The election of the President of the Republic will be officially announced on Thursday, May 11th. The final results of the second round of the election will also be provided.
  • The investiture ceremony (transfer of power between François Hollande and Emmanuel Macron) will take place no later than Sunday 14 May (midnight), end of the current presidential term.
  • Nominations for the legislative elections: 19 May (577 deputies: 539 in metropolitan France, 27 in the French overseas departments and territories, and 11 representatives of French overseas).
  • The legislative elections will take place on 11 and 18 June: the purpose of these elections is to elect all 577 deputies of the National Assembly. They are elected for 5 years and renewed either following the dissolution of the National Assembly (by decision of the President of the Republic) or after the presidential elections. To govern, a majority is needed in the national assembly (289 deputies), which allows the adoption of laws and reforms. In the absence of a majority, a coalition would be necessary. If not, a cohabitation is unavoidable (the president from one camp, the government from another).
  • The opening of the legislature will take place on June 27, the day of the election of the new president of the National Assembly.
  • Senate elections will take place on 24 September: 174 of the 348 seats will be renewed. Senators are elected for 6 years and 50% of senators are renewed every 3 years.

 

II. General elections: E. Macron the great winner ?

According to an OpinionWay poll - SLPV analytics made for the newspaper "Les Echos -, the movement of Emmanuel Macron would be the big winner, totalling between 249 to 286 deputies on the 535 positions covered by the survey. The Republican right would obtain between 200 and 210 seats, the National Front of Marine Le Pen would obtain only 15 to 25 seats (consequences of the transfers of votes and the "vitality" of the republican front). The leftist Socialist Party (between 28 and 43 seats) and the radical left of Jean-Luc Mélenchon (between 6 and 8 seats) would be the other great losers of these elections. As for the Socialist Party, it would be the worst result of its history. This would also be the end of the left-right bipartition of the National Assembly.

Let us remember that it is necessary to obtain at least 12.5% of the votes in the first round to be able to compete for the second. Political fragmentation raises fears for many triangular and even quadrangular ones (three candidates, or even four who compete for the second round). Note that, on the one hand, the republican front is no longer as solid as before, and on the other hand, that political parties in difficulty (the Republicans on the right, the Socialist Party on the left) will try to obtain as many deputies as they can. In other words, there may be less agreements than usual in favor of the candidates of the President, which should allow the candidate of the National Front (FN) to have more deputies than in previous elections (for example, at the previous legislative elections (2012), the FN had obtained 17% of the votes, but by the play of the transfers of votes, the withdrawals and the attitude of the "republican front", it had conquered only 2 seats (0,35 % of the assembly)). According to the first surveys, however, it would obtain only few seats (between 15 and 25, i.e. less than 5%).

According to this study, there would be between 90 and 116 duels opposing En Marche! and the Front National, 180 duels opposing En Marche! and the right wing party, 46 duels opposing left wing and En Marche!, 154 duels opposing right wing party and Front National, 6 to 32 duels opposing left wing and Front National. There would also be around 30 triangular elections, opposing Front National, En Marche! and France Insoumise. By way of comparison, in 2012, there were 420 duels between the classical right and the classical left, both absent to the second round of the presidential election last Sunday.

It should be remembered that for a party to have a parliamentary group in the Assembly, which is an important condition for active participation in political life, it needs at least 15 seats.

Number of seats conquered (study on 535 seats, out of the 577 seats to be filled) Source: OpinionWay - SLPV analytics for "Les Echos - Radio Classique" for metropolitan areas outside Corsica (i.e. 535 seats out of 577)

2017-05-08-table-2

According to this study, there would be between 90 and 116 duels opposing En Marche! and the Front National, 180 duels opposing En Marche! and the right wing party, 46 duels opposing left wing and En Marche!, 154 duels opposing right wing party and Front National, 6 to 32 duel opposing left wing and Front National. There would also be around 30 triangular elections, opposing Front National, En Marche! and France Insoumise. By way of comparison, in 2012, there were 420 duels between the classical right and the classical left, both absent to the second round of the presidential election last Sunday.

It should be remembered that for a party to have a parliamentary group in the Assembly, which is an important condition for active participation in political life, it needs at least 15 seats.

III. E. Macron: Towards a parliamentary majority or a coalition

In theory, the E. Macron programme, which is a program for "both left and right" as opposed to programs that claim "neither right nor left", is likely a priori to federate supporters of all parties, outside the extreme right. If this proves to be correct, the probability that the movement "En Marche! obtains the absolute majority is therefore significant. If this were not to be the case, in addition to the rallying to the President, we would certainly see coalitions. Examination of the polls shows that the number of MPs missing to ensure the absolute majority should be limited, which will facilitate the task of the new President. A government can thus be formed, even if this new "cohabitation" formula will have to be managed, at worst, on a case-by-case basis. This could complicate the task of the President and his Prime Minister.

IV. Conclusion

Some conclusions at this stage:

  • Although we usually tend to trust the methodology of French pollsters and conclusions, the results of the surveys must be taken with caution. Five uncertainties are at play:
  1. There is, first of all, an unknown factor: the participation rate. Will it be higher, weaker? Who will benefit from this?
  2. There is then a new deal: the end of the traditional bipartition (traditional right, traditional left), which will undoubtedly be of importance in the choice of voters;
  3. There is a variant: locally, the French certainly vote for a party, but also for the political personality, except that the desire for "new heads" clearly manifested during the presidential election;
  4. There is a novelty: a crumbling of the republican front. For the first time, a party ("Debout La France", Nicolas Dupont-Aignan) took the step and concluded an alliance with the Front National.
  5. For some parties, it is simply a question of political survival. These parties, the biggest losers in the presidential elections (the Socialist Party and the Republican Party), have to do everything they can to have a broad representation in the National Assembly, and they will probably have more difficulty to withdraw in the second round and to make electoral "gifts" to the new president.
  • Initial surveys incorporate these risks and nonetheless indicate that E. Macron should be the great winner of the next general elections, with a significant probability to obtain the absolute majority;
  • With E. Macron President, France is therefore moving towards a parliamentary majority or, at worst, towards a coalition of government, which should not be difficult to constitute;
  • The uncertainty is lifted and we can now look at France and the French markets with a much lower risk premium and focus on fundamentals. The economic situation is improving.
  • This gives additional attractiveness to the French, but also European risky assets: the specific risk on France disappears, as well as the European systemic risk (exit Frexit);
  • We remain overweight European and French equities (vs. the United States in particular), and overweight European corporate bonds (vs. sovereign bonds). For further details, please refer to the very last issue of our “Cross Asset Investment Strategy Monthly” released last Friday.

ADDENDUM

Reminder of E. Macron programme

2017-05-08-annexe
ITHURBIDE Philippe , Global Head of Research
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French Presidential Election - Macron President: risks disappear... back to fundamentals
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