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French Presidential Election - Extreme risk scenarios disappear and uncertainty dissipates

2017-03- Logo french election
2017.04.26 - Header - EN


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The essential

The first round of presidential elections delivered its verdict. It will be a duel between Emmanuel Macron and Marine Le Pen. Six strong messages emerge from the first round of voting:

  • The French polling institutes did not fail: they had long announced this duel, and they even indicated the right order for all the candidates;
  • According to the polls, and given the transfers of votes, E. Macron should be the next President of the French Republic;
  • The extreme risk scenario (a Le Pen - Mélenchon duel) will not take place;
  • Exit Frexit: the probability of such a scenario has dropped to a level close to zero.
  • The virtual disappearance of the European systemic risk and the specific French risk is a reality: French risky assets are recovering colours, a movement reinforced by the underlying economic situation.
  • Clearly, much of the uncertainty is lifted and we can now look at France and the French markets with a much lower risk premium, focusing on fundamentals.


This note aims to present the stakes of the second round and the proximity of the candidates' programs, that of the winners, but also that of the defeated, whose electorate will have to decide for one or other of the finalists. It also highlights some of the campaign themes that should be at the centre of debates (globalization, Europe in particular).


Global Head of Research, Strategy and Analysis



Already published


The French presidential elections remained uncertain until the end:

  • Four potential candidates for the second round: François Fillon, Marine Le Pen, Emmanuel Macron and Jean-Luc Mélenchon,
  • Two pro-Europeans (François Fillon and Emmanuel Macron), two Eurosceptic or even Europhobes (Marine Le Pen and Jean-Luc Mélenchon),
  • A candidate of a traditional party (François Fillon), a candidate without an official party (Emmanuel Macron), and two "extremist" or "populist" candidates, one from the right (Marine Le Pen), one from the left (Jean-Luc Mélenchon).

In short, 4 candidates, 3 men, 1 woman and 6 possible outcomes.

The polls were tight to the end, though with one pair constantly leading the race: Emmanuel Macron and Marine Le Pen.


I – A duel Macron – Le Pen

The first round finally delivered its verdict: Emmanuel Macron (En Marche!) arrived in the lead with 24.01% of the votes, ahead Marine Le Pen (Front National) with 21.3%. It is therefore between these two candidates that the future President of the French Republic will be chosen. François Fillon (Les Républicains) got 20.01% of the votes, Jean-Luc Mélenchon (La France Insoumise) 19.58%, Benoît Hamon (Parti Socialiste) 6.36%, Nicolas Dupont-Aignan 4.7%, Jean Lassalle 1.21%, Philippe Poutou 1.09%, François Asselineau 0.92%, Nathalie Arthaud 0.64% and Jacques Cheminade 0.18%.

The rate of abstention was around 22.23%, a decent score in recent history, in comparison with previous presidential election first rounds (20.52% in 2012, 16.22% in 2007, 28.4% in 2002, 21.6% in 1995, 18.6% in 1988, 18.9% in 1981). One of the stakes of the second round will be to mobilize this electorate without conviction.

We witness for the second time in four presidential elections, the disappearance of the candidate of the traditional left (the Socialist Party); for the first time, the disappearance of the candidate of the traditional right ("Les Republicans") and the presence of a candidate without an official political party (E. Macron). It is in this sense that the French election represents a strong break with the past.


II – What do the polls say for the second round?

Until now, the populists, although they have been announced or feared, have not been able to take power neither in Italy, nor in the Netherlands, Austria or Spain. This will also be the case for Germany, with the two leading candidates (accounting for more than 60% of voting intentions) are strongly pro-European candidates (Martin Shultz and Angela Merkel).

As regard France, the polls institutes had so far analysed the six possible binomials: Macron - Le Pen, Le Pen - Fillon, Fillon – Macron, Le Pen - Mélenchon, Macron - Mélenchon and Fillon - Mélenchon. What emerged from the different scenarios was that Macron remained in the lead in the second round, regardless of the opponent, that Marine Le Pen did not win the election in the second round regardless of the candidate, and that a Francois Fillon's victory would prove complicated given the percentage of undecided.

As for the Macron – Le Pen binomial selection in the first round of elections, the latest polls indicated that the percentage of undecided was less than the difference between the voting intentions for the two candidates, which gives "some comfort" for the election of E. Macron. But let's be clear: the percentage of undecided and the probable reduction of the abstention rate (as is the case in each second round of presidential elections - 8 points in 2002 and 2 to 3 points on average) add uncertainty.

Let us recall, however, that in the French elections, whether national, regional or local, the transfer of votes has so far led to the elimination of the "extremist" parties: the right either withdraws or votes for the left (and vice versa) to avoid the election of the candidate of the National Front, for example. It was thus (but not only for this reason) that, after having made nearly 17% of the votes in the legislative elections, the National Front had finally obtained only 2 seats of representatives in the National Assembly (0,35% of the seats). François Fillon and Benoît Hamon already announced they would vote for E. Macron and recommend their supporters to do the same. Some other candidates reject the Front National officially but do not want to give voting instructions.

On the day after the first round, a survey by the Elabe institute analysed the French voting intentions in the second round for BFMTV and L'Express. Emmanuel Macron would beat Marine Le Pen by 64% against 36% (69% of those polled are quite sure to vote.) Two age groups are very favourable to the former Minister of Economy: 18-24 (64% for Macron, 21% for Mr. Le Pen, 15% for abstention, blank or no votes) and those over 65 (59%, 19% and 22%, respectively). For people aged 35 and 49, there are as many voters for Mr. Le Pen as for E. Macron (43%).

Voice reporting is also informative. According to the survey, 49% of Francois Fillon's voters would vote for Emmanuel Macron, 28% for Mr. Le Pen, and 23% would not vote or vote for any of the candidates. 53% of Jean-Luc Mélenchon's supporters would vote for E. Macron, 16% for Le Pen and 31% would not vote in favour of any of the two candidates. 17% of respondents did not make any choice in the survey.

The analysis of the qualifications of the candidates is also very clear. 68% of respondents consider that E. Macron is the most capable of forming a majority in the Assembly (23% for Le Pen). 59% of the respondents give E. Macron the qualities necessary to be president, against 32% for M. Le Pen. 58% of respondents are convinced that E. Macron has the best project and is the most honest (33% for Le Pen). The same score for proximity to French ideas and values: 56% for Macron and 35% for Le Pen. E. Macron is also the most able to understand the voters (51% against 39% for M. Le Pen, 10% without opinion). Regarding the desire to really change things, Mr. Le Pen won the vote: 47% against 45% for Macron.


III – The programs of both candidates at a glance

The table below is based on the candidates' programs and on the website of the French newspaper "Le Monde". We added colour for the two candidates who are qualified in the second round: a blue colour for E. Macron, orange for M. Le Pen, and purple for the points of agreement. The same colours have also been added for each beaten candidate, considering the proximity to either Le Pen, or Macron, and this has been done measure by measure. This is important because the electorate of the beaten candidates will obviously have to vote either for Emmanuel Macron or Marine Le Pen. Some comments from the table below:

  • In terms of security and immigration, François Fillon and Marine Le Pen are the closest;
  • In economic matters, François Fillon and Emmanuel Macron are close, as are Jean-Luc Mélenchon and Benoît Hamon;
  • As far as Europe is concerned, François Fillon and Emmanuel Macron are also very close;
  • Apart from a few specific measures such as universal income, Benoît Hamon is a "sort of combination" of Jean-Luc Mélenchon and Emmanuel Macron;
  • On some subjects (not the most important, and not the most numerous, let us admit), there are strong similarities between Macron, Fillon and Le Pen.

Ahead of the second round of the presidential elections, several conclusions must be drawn:

  • A large part of the electorate of B. Hamon will turn to E. Macron;
  • A (large) part of the electorate of F. Fillon will go to E. Macron, and another part - a smaller one - will go to M. Le Pen;
  • The electorate of J.L. Mélenchon is not supposed to choose one of the two candidates in the second round, as the divisions remain strong. A large part may turn to E. Macron, though;
  • The electorate of N. Dupont-Aignan (democrats and anti-europeans) might hesitate between E. Macron and M. Le Pen.

The table below refers to the main programs and cleavages at the dawn of the second round, as well as indications of their "proximity" (blue for "Macron group", and orange for "Le Pen group", purple for consensual measure)..



IV– Europe, the big stake of the second round?

Several points emerge from the analysis of the programs of the main candidates (those who are in the second round and those whose vote deferral is likely to weight in the balance):

  • For Emmanuel Macron, the emphasis is on tax reduction, reforms (flexi-security), innovation and investment, and budgetary rigour;
  • For Marine Le Pen, the rejection of Europe (more moderate in the run-up to the elections), the fight against immigration, restoration of sovereignty (monetary, political, budgetary and territorial) are the main battlegrounds;
  • For François Fillon, priority has to be given to the (reduction in) taxation, the fiscal discipline required for better control of the debt, and reforms (labour market in particular);
  • Jean-Luc Mélenchon insisted on taxation (rising taxation for the richest), sovereignty and Europe (let’s change it or leave it). This last point became unclear lately;
  • Finally, Benoît Hamon developed his campaign on themes such as universal income or the need to change the governance of Europe

The proposed measures (fiscal and tax stimulus, sovereignty or subsidiarity ...) run counter to European rules (Le Pen, Mélenchon and to a lesser extent Hamon) or have the ambition to consolidate European integration (Macron and Fillon). Furthermore, since the French electorate favours the EU and EMU, hostile speeches against Europe have recently been mitigated by the two extreme candidates, Le Pen and J.-L. Mélenchon. But the inconsistency remains between the desire to regain sovereignty (monetary, fiscal, political, diplomatic and even territorial) and to stay within the EU / EMU. The debates preceding the second round will undoubtedly focus on these themes, as they will determine the scope and direction of voting transfers.

Looking at the results and at the usual transfers of votes (the right-wing parties voting for the left, and vice-versa, to eliminate extreme parties at second round of elections), it is reasonable to bet on a victory of E. Macron (the second round will take place on May 7).

What’s next? In less than two months (June 11 and 18), the French people will vote again for general elections (with the whole 577 deputies to be elected).

Two key questions at this stage

  • Will the next President be able to gain a majority? The very weak performance of the Socialist Party favours a massive restructuring of the left wing, a positive factor for E. Macron. He may benefit from a large support from the leftists at the general elections. Note that, in the past, all the newly elected presidents won the general elections that followed the presidential one. But if Marine Le Pen is elected (not our scenario), she will be unable to gain a majority. As a consequence, the political situation (and reforms also, including referendum on the Constitution and on Frexit …) would be completely blocked.
  • If the next President is not able to gain a majority, is a coalition possible? Certainly yes should we consider Macron as the next President. As the above table on the differences between Macron and Fillon point out, the programmes are not irreconcilable. We can consider that a large part of the right parties will accept to run the country and reforms with E. Macron if needed. Any coalition with Marine Le Pen would certainly be impossible.


V – Back to fundamentals

  • If the extreme scenarios, including that of FREXIT (France's exit from the EU), had rapidly fuelled chronicles and comments, they were never really discounted into market prices, no doubt proof of relative serenity in the run-up to the elections, or a strong underweight in portfolios or a wait-and-see attitude. There were no resolutely hostile positions, despite the race at the top of Marine Le Pen's polls, then Francois Fillon's disappointments, Jean-Luc Mélenchon's rise, and finally the fears of a Le Pen-Mélenchon scenario in the second round. Overall, the impact on the French and European markets has been limited:
  • The OAT-Bund spread only increased by about 30 basis points between 1 January and the day before the elections.
  • The deterioration in peripheral country spreads was similar: 30bp for Spain, +45bp for Italy (also in response to specific political problems), +10bp for Portugal ...
  • Slight degradation of sovereign CDS: + 25bp for CDS 5 years of France, + 8bp for Spain, +35bp for Italy, but -21bp for Portugal ...
  • A performance of French financiers similar to European comparable;
  • Finally, it should be noted that the underperformance of French equity markets was only 2% compared to Germany or the United States.

Immediately after the first round of the election, the most unfavourable scenarios (such as a second round of Le Pen-Mélenchon, or the prospect of a Frexit ...) have disappeared, but part of the uncertainty remains: it will be definitively lifted following the parliamentary elections (11 and 18 June). Even if non-resident investors did not rush to the French market, there was reason to expect a relief movement leading to an appreciation of the euro, lower bond yields, an increase in equities and in corporate bond markets and (especially the higher beta segments), and a lower level of the OAT / Bund spread. This improvement in the French market stems in large part from the sharp reduction in the risk premium (declining political risk) and the currently better economic situation. Clearly, the return to fundamentals will make it possible to highlight a tangible reality:

  • An improving economic situation,
  • An upbeat investment,
  • One of the best-oriented bank loans in EMU countries,
  • Significant growth in credit to SMEs,
  • Positive leading indicators,
  • Better profit prospects,
  • A euro that depreciated in effective terms following the strong appreciation of emerging currencies since the beginning of the year,
  • A low-rate environment,
  • Budgetary room for manoeuvre resulting from the sharp reduction in debt service,
  • Attractive valuation,
  • Some of the most generous dividend policies,
  • Particularly attractive dividend yield levels ...


VI – What should we look at now?

This return to the fundamentals of the French economy must not make us forget the international environment:

  • The possible disappointment in the rate of growth of the US economy (bet on a disappointing result for Q1 GDP) is an asset for markets such as Europe or emerging countries;
  • The Fed has started a more pronounced tightening pace, but this will depend on growth and on the Trump government's ability to use the fiscal and tax weapon: the less room for Trump's manoeuvre and the less the Fed will be able to pursue its policy of raising rates;
  • The possible disappointment with "Trumpflation": budgetary and tax measures are slow to come, proof that the Congress and the Administration are struggling to find common ground;
  • The ECB maintains ultra-low rates and a generous asset purchase program (it buys more than twice the net emissions of the zone), but the debate over the durability of its devices will re-surface during the year. At present, short and long-term rates remain anchored in Europe at low levels.


Conclusion : some key messages

The Macron duel - Le Pen was widely expected from the various polls. It did not surprise the financial markets, it even caused a great relief due to the disappearance of the extreme scenarios.

A victory of E. Macron appears the most probable (64% against 36% for M. Le Pen according to the very last poll). The possibility for the next president to form a solid parliamentary majority and carry out the reforms announced in his program becomes strong: the traditional parties of the Right and the Left (the Socialist Party) will have to rebuilt, and it is easy to imagine that the new President will be able to capture many supports.

In short, instead of an extreme risk of an anti-European populist party in power but without a parliamentary majority, a scenario emerges of a pro-European presidency (Macron is by far the most loyal to Europe and its institutions) capable of leading with a majority or a coalition ...

In the line of sight, a strong Franco-German couple (Angela Merkel or Martin Schulz, two convinced Europeans, will be the last two candidates for the Chancellery).

The disappearance of the European systemic risk and of the French specific risk is now a very tangible reality: French risky assets recover their colours.

Much of the uncertainty is lifted and we can now look at France and the French markets with a much lower risk premium, focusing on its own fundamentals. The environment is once again favourable for equity and credit markets (especially the higher beta segments). The reduction in the risk premium goes hand in hand with a lower level of the OAT / Bund spread.

The US (weak) growth, the Fed, the ECB, and "Trumpflation" are back on the agenda.

This return to fundamentals should pay off for EMU, but also for emerging markets.



ITHURBIDE Philippe , Senior Economic Advisor
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French Presidential Election - Extreme risk scenarios disappear and uncertainty dissipates
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