Credit Credit Credit

French Election Update : A replay of 2017

Macro
CD
Christopher Dembik

Head of Macroeconomic Research

Summary:  We see a 80% chance that President Emmanuel Macron will be re-elected against far-right Marine Le Pen. Macron’s expected victory should not be considered as the triumph of reformism but instead as the symbol of a severe crisis of French democracy. This would be the fourth time in twenty years that the French use their vote to vote against someone and not for someone at the presidential election (Chirac-Le Pen 2002, Sarkozy-Hollande 2012, Macron-Le Pen 2017). Expect Macron to face a lot of opposition to his reforms in his second term. No matter how large his majority will be at the National Assembly, he will be a lame duck.


The message of the polls : All recent polls show Macron is well ahead of the pack in the first round (~30% compared with ~26-27% a month ago). The recent increase is mostly explained by the « rally around the flag » effect due to the Ukraine war. Macron is considered as the most competent to deal with the situation by a majority of voters. The far-right candidate Marine Le Pen is still in the second position (~17-18%). But she is slightly lower than in the previous polls, perhaps due to her loud Putin sympathies in the past. The fight for the third position continues between the center-right Les Républicains Valérie Pécresse and the extreme-left Jean-Luc Mélenchon (who was the third man of the 2017 French presidential election). Both are at 13% in the latest OpinionWay poll released today. The former TV pundit Eric Zemmour is losing momentum. He is now ~10%. This is partially explained by his extremist positions on Islam which antagonize a majority of voters and his previous admiration for Putin’s regime. In many respects, he appears much more radical than Le Pen on several issues, including immigration. While most voters worry about inflation and the economy, Zemmour only talks about immigration. This is a mistake. With the exception of Mélenchon, all the other left candidates are below 5%. Voters are skeptical about the exit of nuclear power – which is at the core of the Greens’ economic platform. They understand quite well it will lead to higher energy prices. A few months ago, the Greens were ~10% of voting intentions in the first round. The socialist candidate and current mayor of Paris, Anne Hidalgo, is ~1-2%. The Socialist Party has not worked seriously over the past five years to propose a credible economic platform and its candidate is considered as one of the most unfit candidates for the job, even among socialist supporters. This election will certainly mark the end of the Socialist Party in France and the continuation of the profound political reconfiguration of the Left and the Right, which has started since 2017. If the center-right Pécresse is not qualified for the second round, expect a profound crisis of the Les Républicains, similar to what has happened to the Socialist Party in 2017.

Le Pen’s new consensual economic program : Last week, Le Pen gave a four-hour long TV interview to the French TV show ‘Face à Baba’ – a very popular program mostly watched by young people. She appeared better prepared, including on economic topics, more moderate and calmer than during the final debate of the 2017 presidential election when she lost the argument against Macron. She debated against several opponents and experts, including myself. Her overall performance was good and, sometimes, even impressive. Her main slogan is to « Give the French their money back ». She proposed several tax cuts : VAT cut from 20% to 5.5% on energy and abolition of income tax for people below 30, for instance. This is consensual and would make sense. She also proposes a national loan with a nominal 2% annual interest (known as ‘grand emprunt’) to invest into new technologies. This is the only economic proposal which is an economic nonsense in her platform, in our view. Why would France borrow at 2% from its citizens while it can borrow very large amounts in financial markets at very low cost, close to 0% over a ten-year period ? This measure would be very costly for the country’s public finances.

Macron’s right-wing economic platform : Last week, Macron proposed a major reform of inheritance rights and to raise the retirement age to 65 instead of 62, if he is re-elected. This aims to attract right-wing voters. Compared with other European countries, tax on inheritance is very high in France. This is a sensitive issue for voters. Macron wants to increase the allowance on direct line inheritance from 100,000 euros to 150,000 euros. In addition, the regime of heirs in direct line to the children of the spouses would be extended. In many other countries, inheritance tax has been abolished : in Sweden (2004), Slovakia (2004), Austria (2008) and the Czech Republic (2014). In Poland and Portugal, spouses and direct descendants (which includes both parents and children) are exempt from inheritance tax, for instance. There is still a long road ahead for France to lower taxation. We see a 80% chance that Macron will be re-elected against Le Pen. But he is seen as a ‘default choice’ by a majority of voters. This means he will certainly face much more opposition to his reforms and more violent street protests than in the past. We doubt he will be able to raise the retirement age, for instance. No matter how large his majority will be at the National Assembly, he will be a lame duck.

What to watch now : There is no debate with all the candidates before the first round of 10 April since Macron refused to participate. We will therefore focus mostly on polls in the coming three weeks.

The message of the polls : All recent polls show Macron is well ahead of the pack in the first round (~30% compared with ~26-27% a month ago). The recent increase is mostly explained by the « rally around the flag » effect due to the Ukraine war. Macron is considered as the most competent to deal with the situation by a majority of voters. The far-right candidate Marine Le Pen is still in the second position (~17-18%). But she is slightly lower than in the previous polls, perhaps due to her loud Putin sympathies in the past. The fight for the third position continues between the center-right Les Républicains Valérie Pécresse and the extreme-left Jean-Luc Mélenchon (who was the third man of the 2017 French presidential election). Both are at 13% in the latest OpinionWay poll released today. The former TV pundit Eric Zemmour is losing momentum. He is now ~10%. This is partially explained by his extremist positions on Islam which antagonize a majority of voters and his previous admiration for Putin’s regime. In many respects, he appears much more radical than Le Pen on several issues, including immigration. While most voters worry about inflation and the economy, Zemmour only talks about immigration. This is a mistake. With the exception of Mélenchon, all the other left candidates are below 5%. Voters are skeptical about the exit of nuclear power – which is at the core of the Greens’ economic platform. They understand quite well it will lead to higher energy prices. A few months ago, the Greens were ~10% of voting intentions in the first round. The socialist candidate and current mayor of Paris, Anne Hidalgo, is ~1-2%. The Socialist Party has not worked seriously over the past five years to propose a credible economic platform and its candidate is considered as one of the most uncompetent candidates, even among socialist supporters. This election will certainly mark the end of the Socialist Party in France and the continuation of the profound political recomposition of the Left and the Right, which has started since 2017. If the center-right Pécresse is not qualified for the second round, expect a profound crisis of the Les Républicains, similar to what has happened to the Socialist Party in 2017.

Le Pen’s new consensual economic program : Last week, Le Pen gave a four-hour long TV interview to the French TV show ‘Face à Baba’ – a very popular program mostly watched by young people. She appeared better prepared, including on economic topics, more moderate and calmer than during the final debate of the 2017 presidential election when she lost the argument against Macron. She debated against several opponents and experts, including myself. Her overall performance was good and, sometimes, even impressive. Her main slogan is to « Give the French their money back ». She proposed several tax cuts : VAT cut from 20% to 5.5% on energy and abolition of income tax for people below 30, for instance. This is consensual and would make sense. She also proposes a national loan with a nominal 2% annual interest (known as ‘grand emprunt’) to invest into new technologies. This is the only economic proposal which is an economic nonsense in her platform, in our view. Why would France borrow at 2% from its citizens while it can borrow very large amounts in financial markets at very low cost, close to 0% over a ten-year period ? This measure would be very costly for the country’s public finances.

Macron’s right-wing economic platform : Last week, Macron proposed a major reform of inheritance rights and to raise the retirement age to 65 instead of 62, if he is re-elected. This aims to attract right-wing voters. Compared with other European countries, tax on inheritance is very high in France. This is a sensitive issue for voters. Macron wants to increase the allowance on direct line inheritance from 100,000 euros to 150,000 euros. In addition, the regime of heirs in direct line to the children of the spouses would be extended. In many other countries, inheritance tax has been abolished : in Sweden (2004), Slovakia (2004), Austria (2008) and the Czech Republic (2014). In Poland and Portugal, spouses and direct descendants (which includes both parents and children) are exempt from inheritance tax, for instance. There is still a long road ahead for France to lower taxation. We see an 80% chance that Macron will be re-elected against Le Pen. But he is seen as a ‘default choice’ by a majority of voters. This means he will certainly face much more opposition to his reforms and more violent street protests than in the past. We doubt he will be able to raise the retirement age, for instance. No matter how large his majority is at the National Assembly, he will be a lame duck.

What to watch now : There is no debate with all the candidates before the first round of 10 April since Macron refused to participate. We will therefore focus mostly on polls in the coming three weeks.

21_CDK_1

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.