The French Elections
The far-right candidate Marine Le Pen made it into the runoff against the more moderate and European-centric Emmanuel Macron. The next vote on May 7 will determine the winner. With talk of “the republic, not the party,” both the socialist and center-right candidates who lost have thrown their support to Macron for the runoff. He is the favored winner, but as we have seen, two weeks can be a very long time. Until then, markets will have to consider the fat-tail risk of a Le Pen victory.
She has promised to opt out of the euro and the European Union (EU). That in and of itself doesn’t necessarily mean a “Frexit.” The majority of French citizens want to remain in the eurozone, while the eurozone itself was designed without an exit ramp. In fact, the eurozone is more like the hotel in “Hotel California” by the Eagles: “You can check out, but you can never leave.”
French presidents have more authority, which could mean Le Pen controlling the legislative agenda. That would no doubt include a surge in spending on social issues, backtracking on labor market reforms and penalties for employers who hire immigrant labor. She wants to renationalize the French economy and penalize companies that do business outside of France.
Why do we care about rising populism in France? The global financial crisis cast long shadows, leaving behind a more fragile financial system. Greater risk from debt defaults and additional friction in cross-border trade could hit profits at multinational companies and raise concerns about the financial consequences of populism.