(The opinions expressed here are those of the author, a
columnist for Reuters)
By James Saft
April 24 Marine Le Pen’s likely upcoming defeat
in the second round of the French presidential election will
bring welcome relief of risk to the euro project, and to global
What comes after will show a risk that markets, in Europe
and the U.S., are choosing not to price: governing itself is
becoming increasingly difficult.
Le Pen came second in the first round of elections on
Sunday, and will run against a heavily favored Emmanuel Macron,
an independent centrist whose policies mix further European
integration, labor liberalization and strong elements of social
The election, however is most notable for its rejection of
the existing order; no candidate of the main parties of the left
or right will advance to the second round for the first time in
60 years. About 46 percent of votes were cast for candidates who
either reject the core of the euro project or have flirted with
this idea: the nativist Le Pen, hard leftist Jean-Luc Melenchon
and nationalist Nicolas Dupont-Aignan. Macron will be president
of France, never a simple job, but neither his mandate nor his
power are clear or secure.
“The more significant point is that this result essentially
implies that the parliamentary elections in June will likely end
in a complete stalemate. Macron's En Marche movement is
struggling to find suitable candidates, and obviously lacks a
grassroots network, and its candidates will often be pitted
against Republican, Socialist and FN candidates who are well
established at a local level,” Marc Ostwald, strategist at ADM
Investors Services in London, wrote in a note to clients.
This implies that Macron’s program of greater integration
with euro zone partners - such as a kind of pan-euro finance
minister and integrated military budget - will remain
To be sure, Sunday’s result was a welcome relief, a fact
underscored by the strong rally afterwards in the euro
and global stocks. A Le Pen victory, or even the
legitimate threat of one, brings with it the kind of bank
funding concerns which can take on a life of their own and end
in bank runs and inadvertent disintegration of the common
It is one thing to avoid a rapid falling apart of the euro,
avoiding a slow one is another. Even more to the point: French
voters are not alone in having an inchoate desire to wipe the
existing slate clean.
TRUMP’S 100-DAY DAZE
The U.S. makes an interesting parallel to France. A populist
nationalist won in Donald Trump, but has thus far shown himself
far from able to advance his, or any other, agenda in an
Trump’s first 100 days have been marked out as having
unusually few achievements. Attempts to reform healthcare law
still lie in shambles and the promise of tax reform increasingly
lacks credibility. Tax reform may not arrive until next year,
and in watered-down fashion.
This is not simply because Trump is a poor administrator out
of his depth. It is also because he stands, or slumps, at the
head of a party with deep divisions. These divisions, such as
over the proper role of the state, aren’t simply the result of
Trump’s eccentricities, they reflect very grave disputes among
elected officials and the voters who put them there.
While we will probably not have a U.S. government shutdown,
as would happen this Friday if a budget is not passed, we will
once again be treated to the spectacle of the supposed producer
of the world’s safest asset - U.S. debt - coming close to having
government come to a standstill.
That the U.S. might cease to function as a government over
Trump’s desire to get funding for a wall on the border with
Mexico carries a symbolism which investors haven’t quite
grasped. It is one thing to be promised tax cuts and
reflationary spending, but quite another to deliver them. The
UK, where the ruling Conservatives are about to capture a
stronger mandate in upcoming elections, is a notable exception.
There too, winning seats in parliament will prove easier than
negotiating advantageous terms for leaving the European Union.
There are two broad implications to the political situation
on the U.S. and France: For better or worse, central banks
remain the “adults in the room” on which the stability of
markets depends, but ECB and Federal Reserve efforts to return
monetary policy to a more normal stance are threatened.
After the relief in France and euphoria in the U.S. wear
off, equity markets may eventually impose a lasting discount on
valuations to compensate for political dysfunction.
(Editing by James Dalgleish)