French Lessons

And people thought our Presidential election was wild.

Source: Marine 2017

Election season in France has generated one surprise after another. The first round in their Presidential race occurs April 23rd. Currently, there are 10 contenders. Marine Le Pen – the French Nationalist candidate – is leading in the polls with 27% of the vote. If no candidate wins a majority in the first round, as seems likely, there will be a run-off vote between the two leading vote-getters on May 7th. Parliamentary elections will follow on June 11th, with their run-off races on June 18th.

Le Pen leads the National Front party, a nationalist and populist group whose main policy positions include opposition to French membership in the European Union, economic protectionism, and opposition to immigration. The party was founded by Le Pen’s father in 1972 as the EEC—later EU—came to dominate European politics. Le Pen, Senior was kicked out of his own party in 2015 for his anti-Semitic and holocaust-denying comments. His daughter – the current Presidential front-runner — led the effort to oust him

Marine Le Pen. Photo: AG Gymnasium Melle. Source: Wikipedia

Le Pen’s leading opponents are Emanuel Macron on the left and François Fillon on the right. But Macron has proven an uninspiring candidate, and Fillon’s race has been plagued by scandal. A few weeks ago, investigators revived a probe into his personal finances – alleging he created fictitious, publically-funded positions for his wife and children. Last night his wife was reportedly questioned by authorities for her $1 million salary as his “assistant.” At the same time, Le Pen’s chief of staff Catherine Griset has become the subject of an enquiry as to whether she held a fake European Parliament job. But this has been dismissed by Le Pen as a political prosecution led by the media and political elites. Up until this point, both Macron and Fillon had been leading Le Pen in the polls. But who knows?

Source: UBS

At stake is France’s place in Europe. If elected, Le Pen has promised to hold a referendum on France leaving the EU. In an environment where dynasties are toppled by their own children and spouses are employed in fictitious jobs, it seems that anything could happen. This has been a bizarre political season, and European markets are struggling to price in the uncertainty. French Treasury bond yields have risen from 0.15% to 0.89%.

French 10-year Treasury. Source: Bloomberg

The once-unthinkable now seems possible: if Le Pen wins and France invokes Article 50, the EU would be significantly diminished, or could even break up.

Douglas R. Tengdin, CFA

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