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France: Back on track after first-round voting

Yesterday, France made its choice in the first round of presidential elections. 

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For the first time in the history of presidential elections, neither of the two established parties, the Conservatives and the Socialists, have advanced to the second round of voting. Instead, Emmanuel Macron and Marine Le Pen will face off on 7 May as predicted. We can therefore breathe a sigh of relief... for the moment. There are two reasons to feel relieved: First, because the polling agencies were fairly accurate this time, thus lending added credibility to their predictions for the second round, in which Macron currently leads Le Pen by a clear margin of 62% to 38%. Second, we have avoided the nightmare scenario of a Le Pen-Mélenchon match-up, which means that the risk of a Frexit is significantly reduced. Indeed, as explained in our article “France heads to the polls”, Macron is pro-European, and believes that France’s future lies within a strong European Union. As a result, the euro has risen sharply, with both EUR/USD and EUR/CHF trading at their highest levels in several weeks. The French CAC 40 index has seen an even steeper rise, and is currently trading 4% higher than last Friday. The same relief is being felt everywhere, due in part to the fact that no hidden pockets of voter support materialised to lift Le Pen to a stronger-than-expected result.

In addition, a win for Macron would mean an additional step towards the normalisation of the ECB policy. If Germany’s fall elections and Italy’s vote early next year follow France and the Netherlands’ example in keeping both far-left and far-right forces in check, the ECB could move rapidly away from its zero interest rate policy and quantitative-easing programmes.

This would in turn be very good news for the SNB, which has been under heavy pressure since the start of the financial and banking crisis in 2008.

But for all the euphoria, there is still a risk of a surprise victory for Le Pen in the second round. Brexit and last year’s elections in the US stand as cautionary examples of voter unpredictability. 

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