08.05.2017 — VIVE LA FRANCE, VIVE L'EUROPE: PRESIDENT MACRON

On behalf of Holger Schmieding:

Relief for France, relief for the European project: Emmanuel Macron is the next president of France. He now has a splendid opportunity to reform France and forge a deal with Germany and other European countries to strengthen the cohesion of the EU and the Eurozone. Although serious risks remain, chances are that the tide of populist anger has peaked in the Eurozone. Jointly with German chancellor Merkel, whose chances to win a fourth term in September have improved further with her CDU's victory in today's state election in Schleswig-Holstein, Macron can advance the EU and the Eurozone. He has shown that, in the year after Trump and Brexit, campaigning for European integration and for positive change can win votes on the continent. Hope has prevailed over anger.

Following the first round of the presidential election, Macron's success is no surprise at all. Seen from six months ago, the fact that a newcomer who never held elected office before and had no established party behind him remains a major upset and surprise. It shows that France yearns for change and that Macron can read the sentiment of many French people and is ready to shake up the established order.

Macron will take office within the next ten days, probably between 11 and 14 May. His first task will be to appoint a prime minister. We expect him to pick a fresh new face with some cross-party appeal rather than a stalwart of the established political elite. The liberal Francois Bayrou could play a major role in the new French government, but probably not as prime minister or finance minister.

Macron wants to act fast to reform France. While he can probably enact a few changes by decree, he will need a parliamentary majority to implement most of his reform agenda. With the momentum on his side, his centrist 'En Marche' movement might even win a majority of the 577 seats at the two-round elections for France's National Assembly on 11 and 18 June‎. More likely, however, he will need the support of centre-right Republicans, whom we expect to get more than 200 seats in parliament. Although the campaign will be noisy, we expect Republicans around Francois Baroin to work with Macron after the parliamentary elections.

Fading political risk in France adds to the chance that Eurozone economic growth can surprise to the upside this year. ‎

Firmer economic growth across much of Europe should help to further defuse the tide of populist anger that has swept Europe as well as the US in recent years. In addition, reform‎ progress in France and Europe, the pro-mainstream precedents set by voters in the Netherlands, France, and - on a small scale - in the German state elections at the Saar and in Schleswig-Holstein should also serve to keep the Italian political risk in check. 

Of course, the results of the French presidential elections also carry a stark warning. Voters rebuked the traditional mainstream parties. Almost half of voters had fallen for anti-EU candidates in the first round on 23 April. Far-right Marine Le Pen today did roughly twice as well as her father had done with 17.8% in 2002. Macron - and the EU - need to grasp the splendid opportunity which Macron's victory presents. As usual, it will be tough. Macron will need to brave some protests. But unlike Hollande before him, he now has the mandate to do so. And unlike the unsteady Sarkozy, Macron probably realises what his focus needs to be. Serious reforms in France will make it much easier for Berlin to make concessions to France and its other European partners after the German elections on 24 September. We expect that to happen. If France changes, German fears of moral hazard, namely that German concessions could weaken the reform drive elsewhere, will look much less pertinent.

The continental focus on strengthening the cohesion of the EU27 and the Eurozone will not make it easier for UK prime minister Theresa May to clinch the kind of special Brexit deal with the EU27 which she is apparently seeking.‎

Estimates available at 20.15h local time project 65.5% for Macron and 34.5% for Le Pen.

GERMAN STATE ELECTIONS: ADVANT‎AGE MERKEL

In Germany's northernmost state of Schleswig-Holstein, voters gave a strong thumbs-up to chancellor Merkel. As in the earlier vote in the Saarland, her CDU did well at the expense of the centre-left SPD, whose new leader Martin Schulz now looks somewhat deflated after the initial “Schulz” bounce. Most encouragingly, Germany's pocket version of the Front National, the radical right AfD, fell short of their hopes, getting merely 5.9% of the vote according to projections. The liberal FDP won almost twice as many votes as the AfD. That partly reflects the popularity of its local leader. But it also shows that Germans looking for an alternative to the two big mainstream parties, CDU/CSU and SPD that currently govern in Berlin, need not fall for the political extremes.  

MORE ON THE MACRON EFFECT ‎

For a brief discussion of what we expect Macron to do, see Macron: yes he can deliver (5 May 2017).

To put the French opportunity in a longer-term historical context, see The Macron effect: can Fr‎ance overtake Germany again (5 May 2017). 

Sandra Hülsmann
Telephone: +49 40 350 60-8357