And now people want to talk about it…. so let’s get some things straight.
In recent history, France has happily protested against the political classes and the European project:
- In 2002, Marine Le Pen’s father caused a political “thunderbolt” by making his way into the second round against President Chirac; he gained 16.9% vs Socialist PM Lionel Jospin’s 16.2%
- Opinion polls going into that election showed Jospin on ~17%, Jean-Marie Le Pen on ~13%
- In the 15 years since then, Marine has softened the National Front’s brand, even going so far as to eject her father from the party, and is currently polling around 23% for the first round
- In 2005, France rejected the European Constitution in a referendum, and the changes to the EU only came about after the Lisbon Treaty was accepted in 2007 – which had to be enacted by parliamentary votes and not by going back to the people
- The Constitution was rejected even though post-vote polling showed that >90% of voters supported the EU; the reasons against it were varied but included those who wanted to use the referendum to give a shock to the ruling elite
- The French electoral system magnifies this urge. In the first round, it’s said that the French vote with their hearts, but in the second round with their heads.
And how their hearts must be feeling. For those of you reading in the UK, imagine going into an election where last night police officers were shot dead in Oxford Street. Where last year, a suicide bomb was detonated outside Wembley Stadium as the England team were playing with our Prime Minister inside. Where a gig in the West End was destroyed by terrorists killing the audience. Where those terrorists sprayed restaurant goers in Soho and Leicester Square with bullets. Where a van mowed down families enjoying the sunshine on Bournemouth beach. Where journalists at Private Eye were murdered in their office.
This horrific exercise of the imagination doesn’t seek to belittle the trauma of the French: only to make it more understandable when you consider how people might vote this weekend. Just looking at the polling numbers would fail to appreciate the mood of the French people.
Markets struggle with this, and right now, they continue to believe the risk of market dislocation from this election is low – and manageable.
The Dutch vote calmed some nerves by a poorer than expected showing from populist Geert Wilders. But this is to misunderstand the impulse that is taking place across the developed world. It’s not populism per se, but rather a surge towards the anti-establishment. Geert Wilders had been on the political scene for decades; the anti-establishment sentiment came out in the fact that a record number of parties contested the election. The Dutch proportional electoral system meant that it was possible to register a very specific protest vote: it didn’t need to focus in onto just one party. For example, the party representing Turkish interests managed to gain 3 seats.
Emmanuel Macron is just another example of this. Cleverly setting himself up as an independent, with a whole new party, he has been able to shed his attachment to the previous failed administration. This, despite his background as an Economy Minister in that administration, plus being a former banker and Enarque. We will find out on Sunday just how well he has shed his establishment skin. But then the question will become how he will govern, with his party unlikely to have enough machinery to win the legislative elections in June. Will his Prime Minister come from the Republicans, or even the National Front?
The event risk for European assets doesn’t end this weekend. The question is: how well are portfolios prepared for this outcome? If you fear complacency, consider EUR/JPY downside… but if you believe France is a sideline issue for a reflating world, then consider buying that dip! Which side are you on? Answers on a postcard pls!