European sovereign and credit markets breathed a collective sigh of relief at the results of the March 15 national elections in the Netherlands.
Meanwhile in France, independent centrist Emmanuel Macron and far-right National Front leader Marine Le Pen are still neck and neck in the polls for the first round of the French Presidential elections, with Macron opening up his lead against the collapsing Republicains candidate, Francois Fillon. More to the point, Macron is still widely expected to comfortably beat Le Pen in the all-important May 7 second round vote (see SGH 3/2/17, “France: A Macron-Le Pen Runoff”).
But investor relief over a potential Macron victory – or more accurately a Le Pen defeat – is likely to be tempered until Macron and his allies can prove he can put together a working alliance with several key factions within the mainstream parties going into the June 10 and June 17 National Assembly legislative elections. And here, margin may matter more than markets realize.
*** Assuming he does indeed win the Presidential second round, Macron is highly unlikely to to see his own recently formed “En Marche” party poll anything like a majority in the Assembly – 289 out of 577 seats. And his efforts to form a working majority could be complicated by a strong Le Pen showing of 25% or even up to 30% in the first Presidential round that could translate into winning a solid bloc of seats in the legislative elections. ***
*** We think it likely Macron will move quickly to pull together a parliamentary working majority through key alliances with center and left blocs within the main parties: “Vallsistes,” the followers of Prime Minister Manuel Valls within the Socialist Party’s elected MPs, the “Juppeistes,” the followers of Bordeaux mayor Alain Juppe within Les Republicains, and with the Union des Democrats Independents (UDI), who have shunned center-right candidate Francois Fillon and are already very likely to support Macron. ***
*** But even with these alliances there is a serious chance Macron will not be able to implement the more radical and exciting parts of his agenda, with mainstream parties likely to quell his efforts to further liberalize the labor market and kill his flagship proposal for changing the way social security contributions are collected and redistributed. Traditional parties are also likely to water down his plans to moralize French politics. ***
Going Local, and Le Pen’s Threat
Two problems complicate Macron’s ability to form a coalition in the Assembly that would see through his agenda.
Just about 60% of En Marche’s candidates for the National Assembly elections have been selected among politicians already holding local offices. That is crucial to winning elections to the Assembly, as voters feel more comfortable in voting for well-known local candidates than for party-selected candidates parachuted in from Paris.
But while that is a healthy sign for the reformist’s efforts to renew the French political class, the traditional parties – including the National Front – still have deeper and stronger roots in local communities. And that will make it hard for Macron’s candidates to beat their Socialist or center-right rivals when the former minister’s name is not on the ticket.
Importantly, some analysts believe that just a small increase in Le Pen’s first round voting share – say, from 25% to close to 30% – could translate into a major increase in seats, up to 130 or so, for the FN. And that would have dramatic effects on governance and political stability. First round presidential voting is a sign of a party – or a candidate’s – popularity, although so far the FN has never translated its strength into numbers within the Assembly due to the other parties’ strategy of teaming up to beat the far right candidate in the second rounds. That is now likely to change.
This time around, while we have no independent verification for these numbers, French officials maintain it is likely that a 25% to 30% level of consensus in the Presidentials could mean an exponentially higher number of National Front candidates will be able fend off efforts from other parties to team up against them in the second round of the legislative elections.
Should Le Pen’s FN really win in excess of 100 seats, it will greatly complicate a President Macron’s efforts to form a viable coalition that could dominate the second round of the Assembly elections. Even a less positive result by the FN, while it would be taken with a sigh of relief by markets, would present significant hurdles to Macron.
Turning to Potential Allies
On that note, we understand that in order to form a stable majority in the Assembly, a President Macron would first turn to the UDI, which is seen as a natural ally.
He would then ask his old foe and rival Manuel Valls, who is already seriously considering backing him in the first round, to support his majority with the more centrist faction within the Socialist Party. And on the center-right, Macron would try to convince Juppe’s allies – the more centrist faction within the party – to also join in.
This strategy has its risks. For one, Valls is an easy conduit to tying Macron to his past as a minister of the hugely unpopular President Francois Hollande’s government. And two, there are unlikely to be many Juppeistes among the elected of Les Republicains to significantly boost Macron over the top anyway.
Either way, Macron would be governing with the decisive help of the much vituperated “traditional” parties, thus validating Le Pen’s rhetoric – she calls them “UMPS,” a portmanteau of the former name of LR, the Union for a Popular Movement, and the PS, the Socialist Party – and being forced to water down his “revolutionary” agenda.
Specifically, Macron’s plan to unleash the “animal spirits” of young French entrepreneurs through further liberalization of the labor market, reduce the weight of bureaucracy and universalize social security – which in France is still fragmented and does not cover most independent workers – as well as his pledge to lower corporate taxes (France has among the highest in the OECD) are unlikely to go over well with these center left allies. Meanwhile, his effort to “moralize” and rejuvenate French politics could clash with the traditional center-right conservatives.
A weak President Macron with a vocal Le Pen opposition could lead to five more years of stalemate. And so any initial relief over a Le Pen defeat and Macron victory could well turn out to be limited as the reality of a divided majority unwilling to carry out his program sets in. In other words, we could, post-elections, be facing a France that is very similar to the one we have known for the past few years.