7 reasons why Macron will become President and market implications
The outcome of the first round of the presidential elections which see Emmanuel Macron and Marine Le Pen through to the second round – as per opinion polls – and the positive market reaction are in line with my core scenario and expectations.
I am also sticking to my forecast that Macron, who is leading Le Pen by 22 percentage points in the polls, will win the 7th May run-off to become President, which would in turn likely lead to a further albeit modest rally in the euro.
French opinion polls, which have historically been accurate in “predicting” the outcome of the first and second round of presidential elections, have Macron comfortably winning the second round.
Macron has broad cross-party political support, Le Pen does not.
Presidential candidates with a small number of elected-official sponsors, such as Le Pen, have never become president.
Macron has a reasonably high “positive ranking” in popular polls, Le Pen does not.
Le Pen seemingly does not yet enjoy broad political appeal even if she will likely perform better than her father did in the 2002 presidential elections.
The National Front won 27.4% of the popular vote in the second round of the 2015 French regional elections but only 18.7% of the seats as a result of mainstream parties coalescing against the National Front.
Elections in the Netherlands and Austria suggest that voters are not yet ready to elect far-right parties to the highest echelons of power.
Final straight – Macron and Le Pen through to second round, Macron still favourite
After months of campaigning drama and political intrigue, we now know that the centre-left independent candidate, Emmanuel Macron, and the National Front candidate Marine Le Pen will fight it out in a second-round run-off on Sunday 7th May.
In the closest ever first round, Macron came first with a below-historical-average of 23.75% of valid votes, with Le Pen a close second on 21.53% according to the Interior Ministry (see Figure 1). Voter turnout was about 78%, only slightly below the historical average, and seemingly conveyed no clear advantage to any of the candidates. Opinion polls proved very accurate and overall, the outcome was very much in line with my expectations (see The Ultimate Guide to the 2017 French Elections, Part IV, 13 April 2017 and Speevr Live Chat, 21 April 2017).
Note that the Constitutional Council will publish tomorrow at 17.00 (local time) the final official results which are very unlikely to be materially different from those of the Interior Ministry (see Figure 2).
The winner and France’s president-elect will now simply be the candidate with the most votes (to be clear votes from the first round are not carried over). The view that Le Pen could still win the second round remains pervasive and of course she could still become President. Macron is relatively inexperienced, has no party apparatus to back him up and his policy-program comes across as a little vague. Moreover, if the first round revealed anything it is that French voters remain divided. However, I am sticking to my core forecast that Macron will beat Le Pen on the 7th May by a reasonably large margin and I summarise below the seven reasons why Le Pen will fail to get over the 50% mark.
1. French opinion polls, historically accurate, have Macron winning second round
The latest French opinion polls show that while support for Macron in the second round has edged a little lower to 61% it remains in line with the average of the past few months (see Figure 3).
Importantly, opinion polls for the first round very accurately “predicted” the outcome of the first round, both in terms of the rankings and percentages won by the main candidates (see below). This should perhaps not come as a total surprise. Bar the first round of the 2002 presidential elections, French opinion polls had accurately forecast the first and second round of the past three presidential elections (see Figure 4) – as I argued in Question 2 of The Ultimate Guide to the 2017 French Elections, Part III, 5 April 2017).
Of course opinion polls could be “wrong” but they would have to be wrong by an unprecedented margin of about 12 percentage points in order for Le Pen to get more than 50% of the vote. To put it in perspective, if we assume a similar number of voters in the second round as in the first (about 36.4 million), that would mean over four million voters switching from Macron to Le Pen on the actual voting day.
2. Macron has broad cross-party political support, Le Pen does not
Senior politicians, spanning the party-spectrum, have in their majority given their backing, whether explicit or implicit, to Macron with the simple goal of keeping Le Pen out of power. The list of current and former politicians, policy-makers, officials, advisors and company executives who are now endorsing Macron’s presidential bid has grown to include the following:
- Socialist President François Hollande and Minister of Defence Jean-Yves le Drian;
- Republican and Socialist Party presidential candidates François Fillon and Benoit Hamon, who in aggregate won 26.3% of the first round votes;
- Manuel Valls, the former Prime Minister who was beaten in the Socialist Party primaries in January (30th March);
- François Bayrou, the centrist who came third in the 2007 elections and was polling around 5% before announcing that he would not run in this year’s presidential elections;
- Bernard Delanoë, the popular former French mayor of Paris;
- 40 senior French economists on 13th April gave their backing to Macron in a letter to Le Monde newspaper, as has former IMF chief economist Olivier Blanchard; and
- The Green Party and the Communist Party.
Notably, Jean-Luc Mélenchon, the far left candidate of the France Insoumise Movement who came fourth on Sunday with 19.6% of the votes, has declared he would not endorse any candidate.
Of course, cross-party political support does not always translate to popular votes and Macron may welcome the support of some more than others. But it is at least conceivable, in my view, that still undecided voters could at the margin be swayed by the wave of political support which Macron enjoys.
3. Candidate with small number of elected-official sponsors has never become president
Macron’s level of cross-party political support was already obvious from the large number of elected officials who sponsored his presidential candidacy. He easily crossed the 500-sponsor threshold, gaining 1,829 sponsors or 12.9% of the total. By comparison, Le Pen only received the endorsement of 627 elected officials.
The historical relationship between the number of sponsors and outcome of the first round is tenuous. However, the correlation is somewhat stronger as the number of sponsors increases. In particular, Nicolas Sarkozy and François Hollande, who respectively won the 2007 and 2012 presidential elections, had respectively 3,885 sponsors and about 4,750 sponsors. If this statistical relationship holds this year, Le Pen’s chances of becoming president are slim. Conversely, the odds of Macron winning the presidency would appear reasonably strong on this basis (see Question 4, The Ultimate Guide to the 2017 French Elections, Part II, 29 March 2017).
4. Macron has reasonably high “positive ranking” in popular polls, Le Pen does not
In an Elabe popular poll conducted on 6 April, Mélenchon had the highest positive rating (51%) amongst the presidential candidate and was the only politician to breach the 50% mark (see Figure 5). Macron was second (44% positive rating), Hamon third (33%), Le Pen fourth (32%) and Fillon fifth (23%).
5. Le Pen seemingly does not yet enjoy broad political appeal
In the 2002 presidential elections, Jean-Marie Le Pen, the founder of the National Front party and Marine Le Pen’s father, outperformed opinion polls to came second in the first round with 16.9% of the votes. He was however comprehensively beaten by Republican Party candidate and President Jacques Chirac in the second round, winning only 17.8% of the vote – the lowest share of votes ever won by a second round candidate.
Two things happened. First, the majority of those who voted for neither Chirac nor Le Pen in the first round voted for Chirac in the second. Also, some of those who voted Le Pen in a first round “protest vote” either switched their support to Chirac or did not vote at all in the second round. In essence, the French electorate were simply unwilling to elect as President a controversial extreme-right candidate, regardless of their misgivings about Chirac.
Now of course much has changed since 2002. The National Front is far better established nationally and Marine Le Pen has significantly toned down the extreme-right rhetoric espoused by her father and made the party more acceptable to a mainstream audience (see Question 2 in The Ultimate Guide to the 2017 French Elections – Part II, 29 March 2017). Moreover, the victory of Donald Trump in the US presidential elections and the strong nationalist bias expressed in the UK referendum vote have arguably made it more acceptable to vote for a candidate or decision with strong nationalist undertones. Marine Le Pen will likely perform far better than her father did in the second round – he was after all facing President Chirac (a far more experienced and polished politician than Macron) who had the backing of the then-mighty Republican Party machine.
However, it is noteworthy that Marine Le Pen won only five percentage points more of the first round vote on Sunday than her father did 15 years ago, despite voter turnout this year (78.7%) being far higher than in 2002 (71.6%). This suggests to me that while Le Pen has a strong core of voters and may have benefited from a strong “protest” vote in the first round, she still does not enjoy the broad appeal ultimately required to win the second round and become President.
6. National Front won only 18.7% of the seats in the 2015 French regional elections
The first and final round of the French regional elections held on 6th and 13th December 2015 provide an interesting template. The National Front party led by Marine Le Pen won 27.7% of the national vote in the first round of voting, ahead of all the other parties, including the Republican Party (26.6%) and Socialist Party (23.1%). It was top in 6 of the 13 super-regions, its best-ever showing in regional elections.
In the second round, the National Front won a slightly smaller 27.4% of the national vote, which translated into only 18.7% of the regional seats up for grabs. It failed to win a single region, while the incumbent Socialist Party led by President Hollande won five regions and former President Sarkozy’s centre-right party won seven. At a national level, the National Front was comprehensively beaten, due largely to the other mainstream parties forming tactical coalitions to keep it out of power. Effectively, the Socialist, Republican and centrist parties/candidates which had fought each other in the first round changed tact in the second round, giving their support explicitly (by forming pseudo-coalitions) or implicitly to other parties/candidates to secure victories for the centre ground and keep the National Front out of office.
And this is what is seemingly happening at present, with politicians from the left, centre and centre-right temporarily putting their differences aside, backing Macron and urging their voter base to do the same in a bid to stop Le Pen becoming president. Again, voters do not have to heed the advice of elected officials but the onus is very much on Le Pen to convince voters, particularly those undecided, to ignore this national wave of support in favour of Macron.
7. Voters not yet ready to elect far-right parties to highest echelons of power
Le Pen’s policies are still divisive and recent presidential elections in Austria and national elections in the Netherlands suggest that while nationalist and/or populist parties in Europe are in the ascendancy, there has been a tendency to over-estimate their reach (see Going Dutch and Fed’s next big data hurdle (17 March 2017).
The Dutch national elections for the 150-seat parliament did not cause the upset that many had feared. Specifically, the nationalist Party for Freedom led by Geert Wielders came second with 20 seats – a gain from 12 seats. But this was well short of expectations based on polls which had showed 25% support and leaves the party a long way from being able to lead a ruling coalition let alone form a parliamentary majority (75 seats).
Market rally likely to extend if Macron wins second round
Financial markets have responded positively to the outcome of the first round, even if the euro’s appreciation has been far from spectacular. This tallies with my forecast that if, as per my core scenario, Macron filled one of the top two spots in the first round “French financial markets and the euro would appreciate but given lingering doubts about the robustness of opinion polls, markets would likely remain jittery should Macron face Marine Le Pen”.
- The GBP/EUR cross has dropped from 1.20 following Sunday’s election result to 1.178 (at time of writing) where it has seemingly stabilised for now, broadly in line with my expectations (see French politics, UK macro data and possible GBP/EUR downside, 21 April 2017).
- The euro Nominal Effective Exchange Rate (NEER) has appreciated by about 1% since Friday (see Figure 6).
- The CAC 40 is up about 4.5% to an all-time high, helping global indices also hit new highs.
- French government bond yields are down across the maturity spectrum but 10-year yields are edging higher at time of writing.
Should Macron win the second round on 7th May (as per my core scenario) I would expect French and European financial markets to experience a second phase of rally. However, again it is not obvious to me that any rally in the euro will be pronounced or sustained. While Macron has a pro-Europe agenda, unlike Le Pen who has campaigned on the premise of getting France out of the EU and eurozone, many other factors – political and economic – will ultimately guide the common currency.
Macron’s ability and willingness to undertake the tough reforms which France arguably needs will be tested, particularly as he is unlikely to have strong parliamentary support (see below). Moreover, as long as the ECB maintains a pretty neutral tone with regards to monetary policy, any gains in the euro are likely to be capped. Finally, Germany itself will be holding federal elections in September, which will likely test the resolve of European financial markets.
A changing of the guard and a unique French presidential election with few parallels
This was an election with many firsts which likely tops the 2002 presidential elections in terms of surprises.
- It was the closest fought election in French presidential history with the top four candidates sharing almost equally 85% of the votes.
- It is the first time ever that an independent candidate has made it to the second round.
- It is the first time since Valéry Giscard d’Estaing in 1974 that a centrist candidate has made it to second round.
- It is the largest share of votes ever won (21.5%) in the first round by a National Front candidate (Marine Le Pen/her father had on average won 14.9% in the previous five elections).
- It is the largest share of votes ever won (19.6%) in the first round by a far-left candidate.
- It is the first time ever that neither the Republican Party or Socialist Party candidate has made it to the second round.
- Hamon’s share of the vote (6.35%) was the lowest ever recorded by a Socialist Party candidate (and by a substantial margin).
- It is the first time since Charles de Gaulle than an incumbent president has not run for re-election.
- Marine Le Pen is aiming to become the first ever female French president (there has been one female Prime Minister – Edith Cresson – from 1991 to 1992)
- Macron, who is 39 years old, is aiming to become the youngest ever President (Valéry Giscard d’Estaing was 48 when he won the 1974 elections).
However, it was also a more conventional election in two important ways. Voter turnout was broadly in line with the historical average and opinion polls again accurately “predicted” the outcome of the first round.
The closest first round election in France’s presidential election history
At the risk of stating the obvious, Sunday’s first round of the presidential election was a very close fought-battle – actually, it was the tightest race in the history of the Fifth Republic.
Based on official results published by the French Interior Ministry, independent centre-left candidate Emmanuel Macron came first with 23.75% of eligible votes, just 2.2 percentage points ahead of National Front candidate Marine Le Pen (21.53%) – see Figure 1. This was in line with my core scenario that Macron and Le Pen would likely make it to the second-round run-off on 7th May (see The Ultimate Guide to the French Elections Part III, 5 April 2017, and Speevr Live Chat, 21 April 2017). François Fillon, the Republican Party candidate, was third (19.91%), less than 0.3 percentage points ahead of far-left candidate Jean-Luc Mélenchon.
The gaps between Macron and Le Pen and Le Pen and Fillon were the second smallest ever and well below the averages of respectively 8.2 and 7.4 percentage points (pp) recorded in the previous nine presidential elections (see Figures 7 & 8). Moreover, the gap between third-placed Fillon and fourth-placed Mélenchon was by far the smallest ever recorded and well below the 8.3pp average (see Figure 9). To put it context the gap was only 95,000 votes, equivalent to the population of French town Roubaix (42nd most populated). The implication of course is that the gap between first-placed Macron and fourth place Mélenchon was by far the smallest ever recorded – a mere 4.1pp (versus a historical average of 23.9pp) or 1.46 million votes – less than twice the population of Marseille (see Figure 10).
Macron and Le Pen limped over the finish line
With the top 4 candidates sharing almost equally 85% of the votes, Macron’s share of the vote was the third lowest ever gained by the winner of the first round (see Figure 11) and the aggregate share of votes won by Macron and Le Pen was also a paltry 45.3% (see Figure 12).
Based on historical statistical relationships, the reasonably large number of candidates in the first round was always likely to depress the share of votes won by the winner and runner-up with the popular vote split amongst a number of credible candidates (see Question 5, The Ultimate Guide to the 2017 French Elections, Part II, 29 March 2017). My analysis had suggested that with 11 candidates contesting the first round, the winner would gain no more than 29% and the second-place finisher no more than 23% and of course Macron and Le Pen fell short of even these modest percentages. There are many theories as to why the French electorate is so divided. I would argue that it reflects at least in part the fact that no candidate stood out, with the top five contenders all hampered by obvious flaws.
- Macron is relatively inexperienced, has no party apparatus to back him up and his policy-program comes across as a little vague.
- Le Pen has limited support across the political spectrum and has recently lurched to the right which may resonate with her core supporters but alienates more moderate rightist voters. She is also currently under investigation by the European Parliament for misappropriation of funds.
- Fillon has been formally charged with misappropriation of parliamentary funds and his prior financial dealings and close relationship with President Putin have come under scrutiny. His critics argue that he is out of touch with the average voter.
- Mélenchon’s political and economic programme is still viewed as too left-wing, even for moderate centrists.
- Hamon was clearly hampered by the backlash against François Hollande’s very unpopular presidency and Socialist government and was arguably weak in the two televised debates.
Contrasting fortunes for the Socialist and far-left candidate
While Jean-Luc Mélenchon, who won 19.6% of the vote, just missed out on a place in the second round, he clearly outperformed relative to expectations and was the big surprise in this election. Recall that only five weeks ago he was only polling 12% but passionate and eloquent performances in both televised debates and his ability to capture support from Benoit Hamon, the Socialist Party candidate, gave him the largest share of votes ever won by a far-left candidate. It would, however, be inaccurate to state as the media has that no far-left candidate has ever been a serious contender. Communist Party candidate Georges Marchais came a very credible fourth in the 1981 elections with 15.4% of the vote in the first round and of course Mélenchon had won 11% of the vote in the 2012 elections.
Conversely, Hamon, who had convincingly won the party primaries in July, came fifth with a meagre 6.35% of the vote – a much lower share than any previous Socialist candidate since the 1969 presidential elections and a fraction of the average share of 28.2% won by Socialist candidates between 1974 and 2012 (see Figure 13). He is the first Socialist Party candidate since 1969 not finish in the top three in the first round. This abysmal performance reflects the French electorate’s disaffection with the ruling Socialist Party and President Hollande’s presidency as well as Hamon’s unconvincing campaign.
This result is also part of a broader theme of voters turning away from mainstream leftist parties – in the UK, Jeremy Corbyn’s opposition Labour Party is languishing in the polls on around 26% and set to lose in the 8th June general elections about 50-70 of the 229 seats it currently holds in the lower house of parliament. In the US, Democratic candidate Hillary Clinton lost out to Donald Trump in the collegiate vote even if she won a 54% of the popular vote.
The collapse of the French Socialist Party will be particularly relevant when elections for the National Assembly – one of France’s law-making institutions – are held on the 11th and 18th June (see Question 4, The Ultimate Guide to the 2017 French Elections, Part IV, 13 April 2017). A Socialist Party led coalition currently has a slim majority of the 577 seats but is set to lose a significant number of seats to the Republican Party, based on an admittedly limited number of polls. The National Front is set to have far more deputies than the two it currently has but will likely fall well short of the 289-deputy majority while Emmanuel Macron has no party to speak of.
As the National Assembly has the power to dismiss the Prime Minister (the head of government) and his ministers, whoever is elected President on 7th May will likely have no choice but to appoint a Prime Minister which enjoys parliament’s support. So the President and Prime Minister are unlikely to come from the same party or share the same political agenda – a period of “Cohabitation” which would clip the authority of Le Pen and to a lesser extent Macron, and is usually associated with political instability.
Voter turnout was broadly in line with historical average
While there had been much speculation that voter turnout would be very low, as was the case in 2002, 78.7% of the 46.3 million registered voters cast a vote – only slightly below the historical average of 80.25% and in line with the turnout implied by opinion polls in the run-up to the first round (see Figure 2 in The Ultimate Guide to the 2017 French Elections, Part IV, 13 April 2017). If blank and invalid votes are excluded, voter turnout was 76.65%, again only slightly below the historical average (see Figure 14).
I had argued, based on history, that an-above average turnout would favour Macron and a below-average turnout the far right and far left candidates (Le Pen and Mélenchon) while an average voter turnout would confer no material advantage to either of the candidates (see The Ultimate Guide to the 2017 French Elections, Part III, 5 April 2017). By all accounts the latter scenario materialised, with the average voter turnout yielding a first-round result which was very much in line with opinion polls (see below).
Tragic terrorist attack on 21st April seemingly had little impact on outcome of first round
Opinion polls released the day after the tragic terrorist attack in Paris on 21st April, in which one police officer was shot dead, showed little change in support for the main candidates. The dominant view at the time was that this attack would somehow help fuel popular support for Marine Le Pen given her tough stance on illegal immigration, the deportation of suspected Islamic terrorists and national security.
However, I had argued that in the past two years there was little evidence of terrorist attacks on French soil having a significant or lasting impact on the level of popular support enjoyed by the National Front leader (see Speevr Live Chat, 21 April 2017). Both Marine Le Pen and Emmanuel Macron today attended a national memorial day for the police officer who was killed.
Opinion polls proved accurate, once again
There had been much debate as to whether opinion polls for the French presidential elections would be of any use in helping to predict the eventual winners, given that opinion polls had “failed” to capture the true level of support for Donald Trump in the US presidential elections and for the Brexit vote on the 23rd June referendum on EU membership. French opinion polls had also incorrectly suggested that Alain Juppé (rather than François Fillon) would win the Republican primaries in November and that Prime Minister Manuel Valls (rather than Benoit Hamon) would win the Socialist primaries in January.
However, the average difference between the actual vote count and polls taken on 21st April for the top five candidates was only 0.8 percentage points – well within the statistical errors of margin of +/-2% for these kinds of polls. The largest margin of error was for Socialist Party candidate Benoit Hamon who had polled at about 8% but won only 6.35% of the vote – and even that 1.6pp gap is well within statistical margins of error. The bottom line is that the polls were very representative and had a level of predictive accuracy that even topped polls conducted in prior presidential elections.
Olivier Desbarres currently works as an independent commentator on G10 and Emerging Markets. He has over 15 years’ experience with two of the world’s largest investment banks as an emerging markets economist, rates and currency strategist.
MY PRIOR RESEARCH ON FRENCH ELECTIONS AND EUROPEAN NATIONALISM
The Ultimate Guide to the 2017 French Elections, Part II, 29 March 2017
Going Dutch and Fed’s next big data hurdle (17 March 2017)
Fed 25 and 500 Godfathers (10 March 2017)
The Ultimate Guide to the 2017 French Elections – Part I (7 March 2017)
French elections in focus but US data likely to draw attention (24 February 2017)
Black Swans and white doves (8 December 2016)
EM currencies, Fed, French elections and UK reflation-lite (25 November 2016)
Nationalism, French presidential elections and the euro (18 November 2016)
 Before subtracting sponsors which breached the 50-sponsor-per-department limit.
 The Constitutional Council did not publish official sponsorship figures in 2012 but the Socialist Party claimed that Hollande had the confirmed support of 4,500-5,000 sponsors.