By Dan Steinbock. Originally published at ValueWalk.
After the first round of the French elections , “center-right” Macron and “radical right” Le Pen are positioned for a face-off. However, the real story of the election is that Le Pen’s agenda has shifted the political landscape toward new French Gaullism.
At the eve of the French election, A gunman opened fire on the Champs-Élysées, killing a police officer and wounding others, while the Islamic State claimed responsibility. Meanwhile, US observers explain the rise of Le Pen on the basis of the French industrial decline, while German observers see France sandwiched between extremists on the Left and the Right.
What both ignore is French frustration with the failed policies of both the pro-EU conservatives and socialists – and with US efforts to shape their electoral outcomes.
Before the vote, the leader of the Front National Marine Le Pen and the centrist Emmanuel Macron garnered about 23-25% in the polls. The two were followed by the center-right François Fillon (19%), whose ratings have been penalized by a funding scandal, and the radical left Jean-Luc Mélenchon (19%), whose ratings soared leaving behind socialist Benoît Hamon (9%), who failed to unite the left.
Since no candidate garnered absolute majority in the first round, the second round is critical. With 75% of polling stations results in, Macron was leading (24%) with Le Pen (22%) close behind. Conservative Fillon was penalized by his public scandal; socialist Hamon by President Hollande’s socialists’ failures; and the left’s Mélenchon by the absence of institutional support.
Public facades versus financial interests in French election
Emmanuel Macron’s (40) stint in President Hollande’s socialist government as a business-friendly economy minister alienated most socialists while failing to win over most conservatives. As I have argued through the spring, French right, the business and conservatives can tolerate him as a unifying figure; media will portray him as a “centrist”; and Washington wants him in Elysee Palace. But in reality, he does not represent “center-right.”
Macron advocates a Clintonesque, Blairian “Third Way.” Yet, his platform movement En Marche! is a one-man’s façade, which is guided by Institut Montaigne’s corporate giants, including commercial real estate titan Unibail-Rodamco, banking behemoth BNP Paribas, and aerospace mammoth Safran. En Marche! is funded mainly by conservative interests.
Macron is the ultimate Europhile and federalist. He supports integration and structural reforms. In controversies about immigration, secularism, security and terrorism, he favors balancing acts.
In the past decade, Marine Le Pen (49) has “mainstreamed” FN away from the extremism. She supports traditional values, law and order, while opposing immigration and the EU. She wants to leave the Euro and a return to French franc. Despite her increasing middle-class and blue-collar support, she is typically portrayed as “far-right.” That does characterize her anti-immigration stance, but not her economic, social and foreign policies.
Born into privilege, François Fillon (63) represents conservative Republicans. As President Sarkozy’s premier, he undertook controversial labor and retirement reforms. He is a French Thatcherite. In foreign affairs, Fillon is tough about immigration and Islamic radicalism but sees the NATO expansion to Russia’s borders as a provocation.
Until recently, the third viable candidate was Benoît Hamon (49), a French socialist (PS), a youthful party bureaucrat with stints in the European Parliament and Hollande’s administration. He supports a basic income to all French citizens, and a 35-hour workweek. As the organized left saw too much socialism lite in Hamon, unions turned to the far-left Jean-Luc Mélenchon, along with a great number of independents. The latter would like France to leave both the euro and NATO.
In the second-round of the presidential election, Macron has an overwhelming lead against Le Pen, even if the great number of undecided among the electorate suggests that last-minute upset is theoretically possible.
The new Élysee Palace
The real story of the French election is not whether the winner is Macron, but that Marine Le Pen has re-defined the winning agenda.
Domestically, the new president will struggle to push for (diluted) structural reforms with or without the consent of the unions. It will have a stricter view of immigration and a tougher stance against Islamic fundamentalism.
From center-right to center-left, France will also be more critical toward EU integration, and the euro. In Brussels, Macron is seen as a potential savior of France and the EU.
The EU federalists’ greatest fear is Le Pen’s quest to take France out of the Euro in 6 months, which would be followed by the redenomination of €1.7 trillion of French public debt into francs. In turn, Le Pen’s economic advisers argue that reintroducing a national currency would allow French franc to fall in value against the euro – which would lower France’s debt burden and permit competitive devaluation.
Le Pen believes in classic Gaullism, which stresses national sovereignty and unity, and Europe as autonomous from the superpowers, particularly the United States.
In foreign policy, the new president will be more cooperative with Russia and President Putin, from the Middle East to Ukraine and energy issues. While France may invest more in defense spending, Gaullism is predicated on greater skepticism toward the NATO and French national priorities.
Unlike Le Pen who wants more independence, or Fillon who believes in realpolitik, or anti-NATO Mélenchon, Macron is Washington’s favorite. Indeed, recent Wikileaks disclosures show that US intelligence agencies have engaged in spying campaigns in French elections since the early 2010s. In the past, they supported Sarkozy’s “democratic victory”; now they want Macron in the Élysee Palace.
That’s why, in the coming weeks, French conservative interests will rally behind Macron, while Le Pen will portrayed as “too risky” and “too dangerous” for “France and Europe.”
Economic erosion
Last summer, Holande’s socialist government was pitted against unions and the progressives, which fostered apprehension and fragmentation in the left. France cannot avoid the overhaul of its labor legislation in the future, but a socialist president cannot drive a neoliberal labor agenda. That’s the lesson of Hollande’s fall.
After half a decade of near-stagnation, French economy has benefited from a cyclical rebound, due to a more accommodating external environment, a depreciated euro, record low interest rates and the European Central Bank’s quantitative easing. Nevertheless, these shifts cannot compensate for France’s historical rigidities, which overshadow the economy’s medium-term potential.
In the 1980s and 90s, French growth exceeded 2.2 percent. Now it is 1.1 percent and likely to decelerate to less than 1 percent by early 2020s. Yet, French real wage growth has been solid, despite declining productivity growth. That’s unsustainable. French economy is penalizing future generations for its current distortions.
If the French choose Macron in the second round, he is likely to share the fate of his heroes, Tony Blair and the Clintons; initial excitement followed by disillusion and resentment. If, on the other hand, the French will opt for a last-minute upset, multi-speed Europe – the idea that different parts of the European Union should integrate at different levels and pace – will accelerate.
If the international environment turns more challenging and reforms fail to proceed domestically, French banks, given their size and interconnectedness, could generate adverse effects not just domestically but through spillovers, especially in Italy and emerging Europe.
If the world’s
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