Political Uncertainties Lurking in Europe

With Brexit and Trump victory making polls less reliable than ever and populism upswing carried by these events, more of the political uncertainties are expected to follow in already fractured European Union.

Following the Dutch election outcome on Tuesday, March 21, where voters validated poll trends deciding to favor People’s Party for Freedom and Democracy over Populist PVV with a significant margin,  markets try to draw conclusions over the upcoming elections in France. As Populist PVV leader Walders was running his campaign on the more extreme platform than Marine Le Pen in France, the similar withdrawal of support in the last minute is not expected to be the case in France.

The probability of Marine Le Pen being elected is not significant yet sudden swing in the electoral vote is possible as nearly 40% of the voters are still undecided.

french polls

In this article, we will look at the platform presented by each presidential candidate in France and discuss other geopolitical risks concerning the European Union.

Marine Le Pen, from right-wing populist and nationalist National Front party, is planning to ditch Euro currency, renegotiate EU rules on border-free travel and of possible Frexit if an agreement is not reached. She would also reject international trade agreements in supporting “intelligent protectionism” and to include 3 per cent tax on imports. Le Pen also intends to lower the retirement age, to cut taxes for households and increase welfare spendings for the working class. She also promised to reduce French debt by printing money after they leave Euro.

FrenchEl1
FT.com

 

François Fillon, the leader of the centre-right Republican party, is calling for more integration with the European Union, also promoting free-trade. In terms of labor reforms, he is planning to increase working hours to 39-hours per week for public sector workers, raise the retirement age and make firing and hiring easier. Mr Fillon has also proposed to cut spending by €100bn over five years and fire 500 thousand public sector employees. He would use this surplus in the budget to lower taxes for businesses and individuals.

FrenchEl2
FT.com

 

Emmanuel Macron, social liberal En Marche! party leader, has called for greater EU co-operation also imposing protectionism against outside EU countries. He supports Nordic-style economic model, applying moderate spending cuts together with a stimulus package. Mr Macron vowed to leave 35-hour work week and retirement age but introduce some flexibility for companies to negotiate specific deals.

FrenchEl3
FT.com

 

Jean-Luc Melenchon, left-wing populist Unsubmissive France party candidate who also has Communist party support, wants to renegotiate European treaties or quit EU if negotiations bare no outcome. He has also promised to apply “equitable protectionism” in trade to stimulate farming and good production in France. In terms of budget, Mr Melenchon suggests to increase spendings by €250bn a year, raise public sector wages, increase taxes and raise indebtedness. He proposed to decrease work hours to 32-hour per week and lower retirement age to 60.

FrenchEl4
FT.com

 

Markets are currently scared of right-wing Le Pen victory foreseeing significant uncertainties in the case of a populist upswing for EU. Suggestion by Le Pen to leave Eurozone and devalue the local currency to pay off debt did all but to cheer the French debt holders. Her victory in presidential elections would be a blow for the euro and result in a surge in inflation.

Adding to rising risks in EU, elections in Germany and Italy are expected to be held later this year or in the first quarter of 2018. Results in France are expected to influence voter decisions in these major EU member states as well.

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2 thoughts on “Political Uncertainties Lurking in Europe

    1. Admittedly, there is a certain tension in the market and huge amount of risk with little premium. However, there are some short term opportunities in French-German spreads and the FX market.

      Like

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