France: General elections – Second round – Employment and Europe in line of sight

The President-elect has won an overall majority after the general elections. His party will have 306 seats and 348 when the Modem, a close political party, is included (on 577 seats). Nevertheless, the new majority will not depend on ally (Modem).
It’s far from the tsunami that was expected after the first round. The new President majority will represent 60% of the seats (versus almost 80% expected after the first round) it is close to the average seen since 1981.
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Two days before the runoff

Two days before the runoff of the French Presidential Election, Emmanuel Macron is still clearly leading in polls. He is expected to have 62% of voters versus 38% for Le Pen. The recent upside for Macron is the consequence of Wednesday debate between the two contenders.
Le Pen was very aggressive as she wanted to destabilize Macron. She spent all her energy on that and nothing on explaining her program. Moreover on Europe which is a very important topic for her and her political party she was not clear. Her program is to exit from the Euro Area and from all European institutions. But she was not able to explain why and on the currency framework that would prevail after a Frexit. What she said was approximate and sometime totally wrong. Macron knew more on this topic than her.
At the same time Macron was not destabilized and was able to explain his program. In polls after the debate he was the winner with a large margin.

The second point to mention is that we now have polls on the general elections. (June the 11th and the 18th)  Macron’s party “En Marche” could have an absolute majority, the second would be Les Républicains the conservative party, the Parti Socialiste which current President Holland Party would be third, ahead of Le Front National of Marine le Pen and le Front de Gauche of Jean Luc Mélenchon (Source OpinionWay).
On the 535 districts (just France without Atlantic and Pacific Islands and Corsica). En Marche would have between 249 and 286 seats (the average is 267.5 or 50% of the 535), Les Républicains would have between 200 and 210 seats (38%), the Parti Socialiste between 28 and 43 (6.6%), the Front National (of Marine Le Pen) between 15 and 25 seats (3.7%) and le Front de Gauche (Mélenchon) between 6 and 8 seats (1.3%)
The balance of strength would be for En Marche. This is not surprising as French people are legitimist. They will give an important power to the President-Elect.

Markets have already this scenario in mind. The Euro is close to 1.1, the CAC 40 is at its year high and the spread between French OAT and German Bund has narrowed. The mood is back to “business as usual”. Two things to say: the risk on risky French markets for Monday is a drop (buy on rumor and sell on news) but the French economy is doing well as the Euro does also. It means good prospects for France in months ahead.

The risk of a Le Pen’s win appears limited now.

New currency in France – Uncertainties and Instability

Here is my weekly column for Forbes in France. My column is available here in French

Europe is a key factor in the presidential campaign, even though this theme gained minimal coverage during the two televised debates. Europe is a key differentiating factor for the four candidates who are leading in the polls, and so it must be the main decisive factor in the elector’s choice between the candidates. 

The aim for two of them, Emmanuel Macron and François Fillon, is to intensify existing institutions although the exact ways to achieve this are not the same for them both. But neither wants to leave the Eurozone.
However, for the two other candidates in the top 4, Marine Le Pen and Jean-Luc Mélenchon, Europe marks a clear area of watershed as regards’ France’s position on the European institutions. They both intend to start negotiations with Europe to change the relationship and give France back its decision-making power. In the event of the likely breakdown of these talks (the remaining European Member States would not necessarily want to change the existing framework), both intend to take France out of Europe, backed by a referendum.

In both cases, currency would be at the very crux of the new framework that France would need to set up.
In Le Pen’s opinion, a national French currency is the key to ensuring independence for the country. Meanwhile, under Mélenchon, the euro would become a common currency and no longer a single currency, which would imply the creation of a new currency for France. As the other members of the Eurozone would probably not be favorable to this new framework for the euro, this would be tantamount to France leaving the Eurozone and creating a French currency.

Looking beyond these factors, neither program explicitly outlines the currency framework the candidates would set up. What we do know is that in both scenarios, the central bank would lose its independence and would be used as an instrument to finance state spending. In other words, the state would have the wherewithal to create its own currency to finance its own spending: economic history tells us that this type of situation triggers inflation and fuels macroeconomic, financial and monetary instability. French savers would be directly hit. Continue reading

Where is the US economic policy?

Donald Trump thought that it was an easy task to replace Obamacare by Trumpcare. It was a mistake and Obamacare will remain the framework for millions of americans. He also said in his campaign that the US trade was a source of concern due to unfair trade agreements. He is currently understanding that it is more complex than expected and we can expect that probably nothing important will change.
There was a risk of trade war with Mexico or with China. It’s no longer the case. The press release of the Trump-Xi Jingping in Florida  doesn’t show the revival of a trade war. It’s just a discussion with concessions made by China to the US. It’s not the beginning of a conflict and the very large Chinese surplus with the US will not disappear in a foreseeable future.
In one word, Trump’s campaign as candidate was based on the repeal of the Obamacare and on the possibility of trade war. Both strategies have already failed in less than 100 days. What will happened then? What could be the credibility of the White House? Who will care? The next 4 years may be very long…

The failure of Trump’s strategy is clearly explained by Paul Krugman in a NY Times op-ed published earlier this month.
During the campaign, Donald Trump talked loudly and often about how he was going to renegotiate America’s “horrible trade deals,” bringing back millions of good jobs. So far, however, nothing has happened. Not only is Trumpist trade policy — Trumptrade? — nowhere to be seen in practice; there isn’t even any indication of what it will involve.”
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