As expected, Emmanuel Macron easily won the second round of the French presidential elections yesterday. Aside from the relief that France didn’t go for the extreme right option, this still doesn’t mean a whole lot. Yes, the Macron win came by a wide margin, but on the other hand turnout was quite low and Marine Le Pen basically doubled the result of her father 15 years ago. In any case the focus now shifts to the parliamentary elections in June.
Macron will need support in parliament to deliver on his campaign promises during his presidency. Up to now he has defended a rather pro-business agenda with respect for social rights, basically nicely combining recipes from the left and the right. It remains very much the case whether or not he can deliver on those promises. In light of the lackluster performance of the French economy in recent years, France needs a serious structural overhaul.
It is still highly doubtful that the French are up for this. As such, in spite of the optimism surrounding Macron, a scenario quite similar to his time as Minister of Economy when his reform proposal were hindered by significant opposition is likely. That said, if Macron doesn’t succeed in turning things around, the extreme voices look set to gain strength going forward. That remains a clear risk for the next five years.
After the first round, financial markets immediately understood that a victory for Macron was a relatively sure thing. The euro strengthened, European equity markets went up and German bonds fell. As markets open today we see some unwinding of these positions. The euro trades slightly lower and European equity markets also took a small step back. The big price move happened after the first round and now markets will focus on the next thing.
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