As France is one of the largest markets in Western Europe, and a strong voice in shaping the European agenda, the outcome of the French elections has the potential to significantly affect how MNCs do business in France and Western Europe, as well as in the entire Europe, Middle East and Africa region. In line with FSG’s expectations, the anti-establishment pro-business candidate Emmanuel Macron will face the far-right Eurosceptic Marine Le Pen in the presidential run-off on May 7. Frontrunner Macron appears on course to win the French presidential election, after getting a clear lead in the first round against Le Pen by 2.5%, leaving behind the Republican Fillon, the far-left Mélenchon and the Socialist Hamon.
In the run-off on Sunday May 7th, we expect a substantial proportion of votes for the rest of the candidates in the first round to shift to the centrist Macron, securing him victory. Additionally, despite Le Pen’s recent move to step aside of the National Front, she is still associated with extreme views and remains unappealing to the majority of the electorate outside her narrow core base. The market has since reflected similar expectations of a clear Macron victory over Le Pen, as the euro has gained notably against the US dollar, the British pound, and other major currencies.
We expect Macron, if elected, to promote policies favorable to business environment. Macron, a pragmatic liberal reformist, has vowed to moderate spending cuts, while putting forth a stimulus package for the next 5 years. To strengthen the private sector, he has committed to cutting more than 50,000 public jobs, giving more power to companies to negotiate contracts, and gradually lowering the corporate tax from 33.3% to 25%. Furthermore, MNCs working in the security and defense, education, and renewable energy sectors will stand to gain from extra spending in these sectors under Macron. Additionally, Macron is a staunch supporter of further EU integration and of an open migration policy, sharing German Chancellor Merkel’s views on these issues, and he supports open trade and EU bilateral agreements.
The next challenge for Macron will be the June 11 and 18 parliamentary elections. As Macron’s “En Marche!” is a new party, it is unlikely to get a majority in parliament, and Macron will therefore need to negotiate his agenda on an on-going basis together with the new prime minister and cabinet. Even if Macron doesn’t fully implement his agenda, his presidency will ease uncertainty over the outlook for Western Europe, and support a positive growth outlook in markets with strong trade linkages to France and the rest of the EU, particularly Francophone West Africa, East and North Africa, and Central Europe.
However, FSG still estimates that Le Pen has a 30-35% chance of winning on May 7, as she could potentially attract some disaffected voters from both Fillon and Mélenchon, or they might prefer to abstain from the vote. A Le Pen victory would first create significant depreciation of the euro, likely to a rate weaker than the US dollar.
While Le Pen would prioritize calling a EU or euro referendum, it’s very unlikely she would be able to call one, as she would face strong opposition from parliament. In the highly unlikely scenario that a referendum is held we would expect a “no” vote, as Euroscepticism is considerably lower in France than it was, for instance, in the UK before Brexit.
Even if Le Pen wins the presidential elections, she is unlikely to secure a parliamentary majority. This would prevent her from implementing most of her policy proposals, and considerable parliamentary opposition would limit her remit mostly to security and foreign affairs. Similarly, her ambitious labor policies, i.e. less working hours, subsidies for low income workers, lowering retirement age, lowering personal income tax by 10%, and her health, insurance and electricity nationalization plans will be impeded, as French constitutional provisions will restrain her policy making (FSG clients can find more detailed analysis on her policy agenda in our report Western Europe Regional Outlook 2017).
To prepare for the risk of a Le Pen victory, multinationals should proactively pressure-test their assumptions from an FX, growth, regulatory, and business customer demand in that scenario (more details for our contingency plan framework in our report Q1 Western Europe Quarterly Market Review). For the broader EMEA region, a weaker euro would make imported products from North Africa, Central Europe, and other markets with trade linkages to the EU less competitive, and potentially reduce demand for them. It would, conversely, provide a short-term benefit for MNCs exporting from the EU to EMEA’s emerging markets as cost competitiveness of such products would improve.
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