Will Emmanuel Macron Be Able To Govern?”

By Christopher Dembik, Head of Macro Analysis, Saxo Bank

"There are no disputes between the Minister of Finance and I, and this is for a straightforward reason, it is because – in particular concerning defense issues – I decide and he implements what I decide." - Jacques Chirac, 14 July 2004.

The five main takeaways from the first round of the election

-          Unlike what was the case as regards Brexit and the US Presidential Election, opinion polls in France proved to be very reliable. The method used (the quota method and extensive use of adjustments) enabled the sampling error to be reduced to a very great extent;

-          The Front National (FN) has lost ground in relation to the results of the first round of the 2015 regional elections (21.3% versus 28%);

-          In a system which has been dominated for decades by two parties (the Socialist party (PS) and Les Républicains, Macron has been successful in repeating the achievement of General Charles De Gaulle, in helping a third political  mainstream force to emerge in the country;

-          The vote in favour of the founder of the En Marche party has created a geographical break with previous elections of the same order since he got the upper hand in regions in which Christian democracy was well-rooted, but also in historical bastions of the PS such as in the Puy-de-Dôme department and in large urban areas where the upper-middle class makes up a higher share of the population than elsewhere;

The main risk for investors in 2017 is that they paid too much attention to political risk. As the votes in Austria, the Netherlands and in France have proved, such risks have often been over-estimated by the markets in the last few months.

The winner of the second round is already known:

-          Emmanuel Macron will be the next President of France. Currently, opinion polls are estimating that he is likely to get a 60% share of votes, as against 40% for Marine Le Pen, the FN leader. It is probable that Macron's lead will come down in the lead-up to the vote. This is a crucial point and it has not yet been priced in the market. It could create new tensions which will affect French financial assets and increase France's bond spread. However, the informal anti-Le Pen alliance of the mainstream parties, despite it being called into question for a period, should mean that enough voters switch their allegiance to the candidate of the En Marche party for him to win. However, it would be wrong to compare the percentage of votes that Emmanuel Macron will obtain to that garnered by Jacques Chirac in 2002 (in the second round across Marine Le Pen's father, then the leader of the FN) since, in the mean-time, the financial crisis of 2007 and the strategy of « dédiabolisation » that has been implemented by the FN since 2011 have enabled it to considerably extend its electoral base;

-          Marine Le Pen will not be able to break through the glass ceiling. After having got 7.7 million votes in the first round, based on voter turn-out of 81.5% in the second round (which is the average turn-out since 1958, the year in which French presidential elections by direct universal suffrage began), the FN would need 10 million extra votes to win, which seems completely impossible in light of voting intentions. Consequently, based on opinion polls, the far-right candidate is likely to fall short by between two and three million votes to get past the 50% figure.

-          The only major uncertainty relates to the abstention rate, which could be higher than the average rate of 20%. However, it would require a historically unprecedented drop in turn-out to 50% for Marine Le Pen to be able to seriously challenge Emmanuel Macron. In such an event, she would only need 12 million votes to win. Such a drop is highly unlikely, since the lowest -turn-out since 1958 was 68.85% in 1969.

The real issue concerns the legislative elections on 11 and 18 June:

The fundamental question for France is whether Emmanuel Macron will have the majority in parliament necessary to implement his reformist programme in the wake of the elections on 11 and 18 June.

There are four possible scenarios:

 - He obtains an absolute majority (289 seats): In accordance with the spirit of the Constitution of the French Fifth Republic (established in 1958) and the constitutional reform carried out in September 2000, the votes result in a majority for the President made up of En Marche MPs, "Macron-compatible" PS MPs, members of the UDI and supporters of Alain Juppé, which would enable all of the reforms promised to be implemented.  This scenario, which assumes great enthusiasm regarding Macron (which was not seen in the share of the vote he obtained in the first round), an implosion of the PS and a split within Les Républicains party, appears quite unlikely;

- He obtains a relative majority: This is our baseline scenario. Given that they do not have an absolute majority in the National Assembly, the French equivalent of the UK House of Commons, Macron and his government will have to work to obtain, on an act-by-act basis, the support of it. This scenario is a credible one. Political lines are already moving, since prominent figures in Les Républicains have expressed their wish to work with Macron.  In this context, a Prime Minister will have to be appointed who is a deft negotiator, for instance Richard Ferrand, a PS MP and the Secretary-General of En Marche. This would represent an unusual but not a new situation in the history of the Fifth Republic, since the Socialist Prime Minister Michel Rocard was faced with the same scenario from 1988 to 1991. At that time, he obtained support from centrists and Communist Party MPs agreed to be neutral. He also used Article 49-3 to a great extent. This article is a mechanism provided for in the Constitution which enables the government to be held responsible for legislation which is automatically adopted, unless a motion of censure is filed by at least 58 MPs and is voted for by at least 289 MPs (which is an absolute majority). If this is the case, the government must resign, which has not happened since 1963. Thus, in spite of the lack of an absolute majority, the 1988-1991 period was characterised by major reforms, such as the introduction of the CSG (a social welfare contribution), the re-introduction of the ISF (wealth tax) and also the creation of the RMI (jobseeker's allowance), which was adopted in 1988, when RPR (Conservative party) and UDF MPs voted in favour of it. The French Constitution is sufficiently well-designed to cater to all circumstances and to allow even a government with a relative majority to carry out reforms.  It is, consequently, prudent to say that Emmanuel Macron will be a President who will be able to implement his programme of reforms.

- A coalition government with Les Républicains and/or UDI: This is certainly the second most credible scenario. This would be the fourth coalition government there has been since 1958. Instead of becoming a « republican monarch », Macron would be reduced to the role of a President with fairly limited powers and would certainly not be in a position to put in place his ambitious economic programme. He would have powers in respect of a few areas (defense and foreign policy), but a more minor role in relation to domestic policies.

- Balkanisation of the National Assembly: This is the worst-case scenario brought up in the evening of the first round but which has no chance of taking place. The scores obtained by the four main presidential candidates (around about 20% each) would suggest that four parliamentary groups of equal size will emerge, which would lead to great political instability that would be a throwback to the French Fourth Republic. This assumption is evidently erroneous. Indeed, the popularity at national level of Jean-Luc Mélenchon is not reflected in the scores obtained by the Front de Gauche or by the French Communist Party at local level, which need the support of the PS to manage to get MPs elected. Furthermore, the fact that the proportional representation system is not used for the French legislative elections means that the FN will not get a significant amount of MPs elected (currently the party only has two MPs).