French elections: Why this time it is different

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​France is a stable two-tier semi-presidential regime, traditionally resting on a two-party system. However, in our new report, titled “excuse My French (elections)”, we claim the upcoming presidential election can signal new, significant developments. 

Top French politicians - François Hollande, Nicolas Sarkozy and Manuel Valls -  have been voted out or opted not to run again. Weak economic performance, political defiance and antiestablishment rhetoric - at home and abroad - have caused a blatant lack of forward visibility. 


The stigma of a “lost decade” could be at stake. 


GDP per capita is almost the same as in 2007. With close to 10% unemployment, inequalities of opportunities have risen between the so-called insiders (often with an open-ended job contract) to the outsiders (the unemployed). And France’s voice in Europe sounds dimmed by a vulnerable macroeconomic dashboard (e.g. 96.7% debt-to GDP ratio) and a sluggish private sector growth. 

The French voter is also different. Her Maslow pyramid for economic policies is made of 3Rs. 

Rebalancing (turning savings into investment, generating yields), Reflation (increasing prices and salaries) and Retrenchment (from Europe). 

The four front-runners in the polls - Marine Le Pen (Front National), Emmanuel Macron (En Marche), François Fillon (Les Républicains), and Benoit Hamon (Parti Socialiste) – are addressing them quite openly, sometimes with disruptive ideas; hence the uncertain political outcome. 

In the meantime, investors have sanctioned the uncertainty surrounding the French elections by increasing the cost of financing for France by +30 basis points since the beginning of the year, according to our estimates. If this markup persists, it also means the expectations are those of a minority government. 

Beyond the presidential race, the legislative elections do matter and so does the risk of cohabitation between the executive and the legislature. We defined four market scenarios with varying impact on financial markets and economic variables. 

Two of them are of importance: First, a Le Pen win would trigger a confidence shock, in part because of the Frexit rhetoric. As a result, the spread between the German 10-year Bund and the French 10-year OAT could increase by +100bps with no majority in the Parliament and up to +300 bps with a parliamentary majority for the Front National; second, the risk of a minority government or the absence of a majority in Parliament would cost +30 bps to the spread because of the partial governability of the country and the limited efficacy to unleash growth. 

This risk is the one priced in today. 

As for growth, deficit, and debt, based on available programs, only Macron would reduce the deficit under 3% of GDP and stabilize the debt by 2018. As for GDP growth, Macron, Fillon and Hamon have identical results by 2018 (+1.5%); only Le Pen would result in a massive deceleration to +0.5% by 2018, assuming a mild defiance shock. 

In brief, the good news is that France will have a second wind after the election: a mechanical post uncertainty boost. The bad news is that it could be short-lived if the winning candidate fights for a majority in Parliament to pass every bill and every reform.

Ludovic Subran 

Chief Economist 

Euler Hermes 


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