Markets before the expiry of the presidential majority
with a call for early elections National Assembly, long mark The President will order the termination of the majority. He has said this Edouard Philippe, the first of his prime ministerswho is already preparing for Next candidacy till Presidency of the Republic. It’s no longer about bringing together a majority that supports the president’s policies. ElectionThe election, in which 577 representatives will be elected in several constituencies by a two-round majority system, will serve to allow the different French political families to mark their own positions in the three years that remain until the end of Macron’s mandate.
If Macron had ever dreamed of creating a new party that would cover the entire spectrum from center-right to center-left, the last European elections woke him up. The candidacy sponsored by the President of the Republic did not reach 15% of the votes, that is, less than half R.N.under the leadership of Jordan BerdellaDolphin Marine Le Penand is practically the same as the new rising star The liberal left, Raphael Glucksmann, allied with him socialist Party. Macron was there, along with Melanchon (whose party got less than 10% of the vote), a major defeat in the last electoral contest. The formation that symbolizes the traditional center, Les Républicainsretained the type, as did the greens and Reunionright-wing party created by Eric Zemmour With a voter turnout between 5% and 7%, Macron’s decision surprised all relevant political actors, and provoked a dance of coalitions that was not what he had intended. The personalism of French politics gives rise to coalitions that are hard to predict. If there is more than 60% participation, it is very possible that in almost half of the constituencies three candidates could present themselves in the second round. In that case, it will be necessary to see who continues and who withdraws, recommending the vote to people from another party. Electoral surveys can estimate with some accuracy the percentage of the vote that each party will receive at a national level, but translating it into seats is a real gimmick. And it is pure guesswork how those seats will be grouped together to form a government majority.
Financial markets are not friends of uncertainty. And they have reacted accordingly. The French stock market has fallen by 5% since the call for an early election, the risk premium has increased by 20 basis points, and the sectors most exposed to the risks of potential political instability in France have been the most affected. Infrastructure, energy and, above all, banking (with a notable decline). BNP quotes one of two Societe Generale) have suffered a special punishment. Great global leaders in sectors such as luxury (LVMH), industrial gases (air Liquide) or electrical equipment (Schneider) has maintained a better relative tone.
The contagion effect on the rest of the euro area stock markets is still very moderate, although it is more significant in the banking sector. Euro skeptics are not dead, but they have certainly lost a lot of strength. Greece, Brexit, or the entry into power of the Cinque Stelle and the Lega in Italy caused serious turmoil in the markets.
What kind of governments might these elections produce? And how might the markets react to different choices?
Surveys suggest that 200 to 250 delegates will go for the RN, 100 to 150 delegates will go for Macron’s candidacy, and 150 to 200 delegates will go for the RN. Left-wing coalition NFP, Nouveau Front Populairewas distributed in half between Centre-left (socialists, environmentalists, followers of Glucksmann)…) And this the more radical left (LFI and the Communists).). At the end, L.R.The traditional centre-right will retain around 50 representatives, who could be decisive for the majority configuration.
What are the possible real majorities? Permanently, we hardly get any, although if we try, only two appear probable. The first is the union of the RN with the LR, that is, with Le Pen on the center right. I would have to overcome many personal animosities, but it is an option that cannot be ruled out. It would obviously require abandoning the most populist economic proposals in Le Pen’s program (retirement at age 60, significant pay rises for all civil servants, abolition of the junta). Tub for basic products, increase unemployment benefits…) because these points, very much in line with those proposed by Mélenchon’s LFI, and which clearly do not allow balancing public accounts (already under the close supervision of the European authorities), would hardly be acceptable to any party L.R.With a tradition of pro-Europeanism and pro-government. Jordan BerdellaThe prime ministerial candidate has already started bandaging the wound. When asked if he will keep his promises, he resorts to the expression “in principle yes” (which is a departure from “in principle no” from 40 years ago). Spain,
The coming to power of the RN may raise some doubts, but most likely it will happen, as it has already happened the Fratelli d’Italia, Normality would be restored in the face of evidence that, when anti-system people have to pay payroll and pensions, they instantly become part of the system.
Second, according to the wishes expressed by Macron when announcing the dissolution of parliament, a transversal majority of “moderates” of everything from the center right to the center left will be formed. Macron has moved from the ‘Front Républicain’ (everyone against Le Pen) to ‘neither, nor’ (neither Le Pen, nor Mélenchon), which would bar him from half the representatives of the NFP. But, even without the rebels and the communists, what stability can we expect from a government that includes everyone from LR members to the Socialists and the Greens, including all the Macronist family, led by an independent like Glucksmann? Probably not much: perhaps we will witness a parade of prime ministers and a showdown of candidates for the presidency of the Republic. But there will be no majority willing to make decisions directly contrary to a certain budgetary discipline.
In the second round of the last presidential election, Le Pen received 41% of the vote. Anyone who wants to be alarmist by describing her training with the adjective ‘extreme’ can do so, but with these percentages of popular approval, the adjective ‘normal’ is statistically more rigorous. The market has already assumed that there will not be a presidential majority, but it will not be an irresponsible majority with public accounts or anti-Europeanism. France will remain in the euro, it will have to balance its budget, the ECB will ensure that it does so, its large global leading companies in many sectors will continue to make profits and pay dividends. And that, nothing else, is what really matters to the market. If the French stock market falls after the election, we will have an excellent buying opportunity.
*Josep Prats He is the manager of the Abante European Quality Fund.