France: A Macron-Le Pen Runoff

Published on March 2, 2017
Les Republicains candidate Francois Fillon’s refusal yesterday morning to withdraw from the French Presidential race, even as he loses steam and is hammered by judges delving into an embarrassing family job-padding probe, was just the latest twist in what has already been a highly unusual 2017 campaign.
 
Fillon’s stubborn willingness to stay in the race despite his legal and ethical woes had been previously overlooked if not tolerated by center-right voters. But his reservoir of goodwill with them and with his allies has now all but evaporated.
 
*** Even the traditionally friendly UDI party has withdrawn its support for Fillon’s run, and we hear now one of his top people, former minister Jean-Louis Borloo, could be leaving as well, to endorse the centrist independent Emmanuel Macron, over the next few days. It is tough to gauge the exact impact of Fillon’s collapse on the other two top candidates, as some of his supporters may also peel off to the front runner, Marine Le Pen and her Front National. But what is clear is the race is essentially turning into a two-way contest between Le Pen and Macron even in the first round of votes schedule for April 23, where voters have traditionally diffused their ballots across a broad range of candidates. ***
 
** And between the two, Macron’s past week has been nothing short of fabulous, as he scored centrist Mouvement Democrate (MoDem) leader Francois Bayrou’s endorsement, and even more importantly, looks to finally be gaining traction with a crucial part of the electorate, the more moderate “baby boomers,” through the unveiling of bits of his program. He is expected to solidify his base further after announcing his full policy plan this morning. ***
 
*** But even though she has been hurt by this latest unexpected Macron surge, if Le Pen does pull out a surprise win, we understand she will carry out an agenda of far reaching, radical constitutional reforms that by design will bypass the checks and balances of the Bicameral system that many analysts are mistakenly expecting will moderate her impact and power. Those include, but are not limited to, pushing for France’s exit from the Eurozone. And precisely because Le Pen’s plans are already so clear, a second round race between Macron and Le Pen will now de facto be the referendum on France’s membership of the Eurozone and – as a consequence – on the future of the EU. ***
 
In other words, the tail probability of a Le Pen victory is shrinking, indeed a reform oriented Macron win, as is looking more likely, would be a very strong positive for French and European markets. But the economic, political, and market magnitude of a populist Le Pen surprise should in no way be underestimated, and will in no way follow the more benign templates we had expected for the historically parallel Brexit and Trump victory surprises.
 
Macron’s “Tremendous” Week
 
For the longest time, the polling for the French Presidential race had been fairly static, if not boring. But suddenly independent candidate and former economy minister Emmanuel Macron has climbed modestly, but significantly, over the last two weeks into a significantly better position to win the Elysee Palace in May, even though he still has to dismiss the feeling – which is ever present among French voters – that he is inadequate to run French foreign policy, and ill-positioned to guarantee the country’s security from terrorist attacks given his young age, 39, and lack of “gravitas.”
 
But on that key front, Francois Bayrou’s endorsement last week, while tainting the independent Macron with a shadow of the old establishment, has also turned out to be instrumental in giving Macron some badly needed institutional credibility especially with baby boomers, France’s biggest and most reliable group of voters. And, just as important, the Macron camp had started leaking his policy priorities last week (his full program was presented this morning), reinforcing the message that he has a plan, beyond simple appealing rhetoric. 
 
Boomers could be the most decisive swing group of voters in French elections as they are the largest demographic and have the highest turnout rate. Since France’s median voting age bracket is 55 to 60, but the actual voters’ median age bracket is 60 to 65, if Macron can capitalize on his newly found popularity with this part of the electorate, he will have a serious shot at the presidency and perhaps could even go as far as winning the first round. That would be an enormous boost to his camp’s morale and would send French markets soaring.
 
And there should be more good news coming for Macron. In addition to Borloo, it appears now that even former Prime Minister Dominique de Villepin may be considering an endorsement of the independent, third party candidate. 
 
And undecided center-right voters previously in Fillon’s camp might be further tempted to go with Macron now that he has pledged to adopt a Bayrou law proposing to moralize French politics and public life. This crucial piece of legislation, one result of the agreement between Bayrou and Macron, will be included in the ten proposals Macron’s “En Marche” party candidates for the Assemblee Nationale in June will have to pledge to uphold if they get elected.
 
In picking that slate of candidates, Macron is pursuing a carefully centrist, calculated approach. Specifically, we understand that 60% of Macron’s “En Marche” movement candidates to the Assemblee Nationale will be selected equally among center-left and center-right elected officials, while 40% will be chosen, regardless of their affiliation, from a pool of previously unelected citizens.
 
Le Pen’s Agenda
 
But even if Macron is now clearly on the rise, Marine Le Pen remains a formidable adversary, and her victory would no doubt prove an existential threat for the EU well beyond the Brexit vote.  
 
Never to be underestimated, Le Pen is also now targeting Fillon voters, using her calling card of security and protection from illegal immigration that is so appealing to  conservative French voters. On the other hand, she has struggled with some conservative older voters on economic issues, torn with a fear that the economic turmoil that could ensue from a Le Pen victory could crush their savings. 
 
There has nevertheless been speculation in the financial press that a Le Pen victory might not necessarily lead to a “Frexit,” due to constraints in the French constitution and given the near certainty she will most likely fail to win enough seats to control the legislative branch.
 
We would caution against this view the same way we cautioned against the assumption some shocked “Remainers” made after the Brexit referendum that Brexit would never in actuality happen.
 
Indeed, Le Pen’s political agenda is predicated on a number of key, fundamental constitutional changes to pave the way to implementation. And that sweeping change is at the core of her political message. Furthermore, she would be unable to implement the bulk of her economic and social plans without an exit from the EU. And while the road she would take to achieve that is still not entirely clear, her end-game undoubtedly is.
 
Strictly speaking, Article 89 of the French constitution – the article that regulates constitutional changes in “normal times” – requires Parliament to approve of any changes before they are put to a referendum. But that rule is not sacrosanct. In 1962, when then President Charles De Gaulle wanted to introduce a system of direct election of the President, he put it straight to a popular vote, and he won.
 
Constitutional experts in France generally agree that he was in violation of the constitution. But the fact is the result was never challenged, and indeed changed the entire fabric of the French political estate in “creating” a Fifth Republic with a semi-Presidential form of government that is still in place.
 
Le Pen is said to like to picture herself as a “new” De Gaulle, and to relish the historic opportunity to present proposals for constitutional changes as disruptive and radical as the beloved General’s, so much so that their approval would de facto constitute the beginning of a “Sixth Republic.” FN officials don’t like to mention a  “Sixth Republic” openly – it is far too radical and would raise too many alarm bells – but we have heard those words whispered nevertheless.
 
The fundamental changes Le Pen would seek to introduce, and put to a referendum, are:
 
* For a more direct relationship with the people (her campaign motto is “au nom du peuple”), a widening of the scope of Article 11 which regulates legislative referendums;
* In order to regain monetary, economic and border sovereignty, the abolition of Title 18 of the French Constitution that regulates France’s relationship with the EU;
* For a “fairer” political representation (that not surprisingly would lead to a sharp increase of FN presence in the legislative branch), the introduction of a purely proportional voting system.
 
If Le Pen, as formally required, were to wait for Parliament to vote in favor of those measures before putting them to a referendum, she would be waiting for ever. She would be unable to even begin to implement her broader agenda. That heavily depends on these preliminary changes, and FN officials tell us, with a relative degree of confidence, that she will therefore put them straight to the people.
 
Le Pen, if elected, would first to head to Brussels to convince EU partners to give France a new arrangement that would allow her to control borders, devalue the currency, and increase deficit spending. But that would be tantamount to exiting the single market, and France’s exit would factually mean the end of the EU as we know it.
 
After such negotiation, which she has pledged to carry for up to six months, in the winter of 2017 she would launch a broader referendum on constitutional changes that would also include – but not only concern – EU-related matters.
 
After that, if everything goes her way, she would proceed to dissolve Parliament and to call legislative elections, under the new proportional law, where the FN could win a third of the Assembly seats and with it some degree of control.
 
Of course, she will first have to beat Macron in May.
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