THE ZEITGEIST: May 5, 2017
Plop plop, fizz fizz, oh what a relief rally we had! On the Monday following the round-one results of the French presidential election, the CAC40 rose by +4.2% and the 10-year OATs yield sank by 11 basis points. By Tuesday's market close, the SPX had risen by +1.7%.
The market got just what it wanted. Pretty much as pre-election polls indicated, Emmanuel Macron's mildly reformist status quo "Marchons!" candidacy came in first with 23.7% of the vote and Marine Le Pen's radically reactionary candidacy came in just behind with 21.7%. Forced to choose between these two options in the second round this Sunday, Macron is universally expected to win by roughly a 60-40 margin. Macron is a globalist. He loves the EU. He thinks France basically works--and where it doesn't he will get his experts to fashion the needed repairs. Macron is a whiz kid who used to make money for Rothschild and knows CEO-speak. Bloomberg, FT, The Economist, and all the bien-pensant financial media support him. Message to markets: Everything is safe for now.
But how long is now going to last?
Keep in mind that the current mood of the French electorate is grim. Seven years after the GFC, GDP growth has trouble beating 1%. The unemployment rate is over 9% overall--and 23% for youth. Despairing of upward mobility, college-educated young adults are emigrating in rising numbers. So are native-born Jews. The official policy of immigration assimilation is widely considered a failure--which matters, since roughly 8% of the French population is Muslim (the highest in western Europe). As most voters see it, the ruling class of France is unable to rescue them from economic stagnation, is powerless to protect them from periodic terrorist attacks, and is mired in venality. (Witness e.g. the spectacle of Penelope Fillon secretly "earning" nearly 1 million euros from the state over eight years as an administrative assistant to her husband.)
Accordingly, the voters went to the polls last week in a revolutionary mood. The Socialist incumbant was so unpopular he didn't even consider running for another term. Both of the top two candidates--and three of the top four candidates--represent political parties that have never before occupied the presidency.
How's this for revolutionary? Almost exactly 50% of the voters voted for candidates who promised a total makeover of the French state--either from the far right (Marine Le Pen's Front National and several other minor parties like Nicolas Dupont-Aignan's Debout la France) or from the far left (Jean-Luc Mélenchon's La France Insoumise and other parties with equally colorful names like Resistons! and Nouveau Parti Anticapitaliste). Right or left, all of these movements are fundamentally reactionary. Their leaders fulminate against capitalism and social change. Ominously, all of them have darkly threatened to pull France out of the EU.
Another 20% voted for the Republican Party under the candidacy of François Fillon. Like the far right, Fillon is a flinty social conservative (on immigration, terrorism, and defense). Yet unlike the far right, he proposes an ambitious, market-oriented agenda of tax cuts, spending cuts, and deregulation that many have labeled "Thatcherism." Fillon supports the EU. But his economic program, in its specifics, is unquestionably the most radical.
That leaves another 30% who voted for either Emmanuel Macron or Benoît Hamon--that is, for the secular and mildly progressive status quo. Macron was economic minister for Socialist President François Hollande before bolting to start his own party. And Hamon represents the rump of the official Socialist Party.
Here's how the first-round voters broke down by region.
Note that the urban Parisian center and the more affluent west opted for Macron. The rural south and declining industrial east opted for Le Pen. The parallel to the Brexit and Trump votes is in this respect unmistakable. Indeed, The Economist puckishly points out that if the first round vote were used as a final vote to determine the presidency according to U.S. rules (first past the post in each "state," with two extra electoral votes for each department), Marine Le Pen would now be Madame la Présidente. Like Trump, she would have lost the popular vote but won the election due to her territorial advantage.
In case the regional association between income and vote needs clarification, here is a map showing poverty rates by region. Note the match between poverty and Le Pen.
Here's how the voters break down by educational attainment.
Note that Le Pen supporters, as expected, show a steep inverse correlation with education. With Macron and Hamon, of course, the correlation is positive. Keep in mind that an estimated 85% of Muslims, who tend to have below-average educational attainment, voted for Macron, Hamon, or Mélenchon. So if we were to look only at non-Muslims, the populist skew would be even more dramatic than what is shown here. Fillon, the candidate of the socially conservative bourgeoisie and practicing Catholics, also tilts somewhat toward the more affluent.
Now look at voting by age.
Here, as I have often pointed out, generational preferences in Britain and the United States are quite different from what we see in France--and in continental Europe generally. In the Brexit and Trump decisions, Millennials were most likely to vote for the status quo and older generations most likely to vote for a radical and nationalist alternative. In France round one, by contrast, Le Pen and Mélenchon did best among the young and faded among the old. Mélenchon was the first choice among the very young--helped in part by strong support from young Muslims. Le Pen clearly beat Macron among all voters under age 60. Over age 60, Macron clobbered Le Pen--and Fillon (here religion probably counted) clobbered everyone. Older voters did not want to topple the establishment or leave the EU. Young voters said, hey, this isn't working at all: Time to start over.
So what will happen on Sunday? Macron will almost certainly win. Although the clear majority of voters did not opt for the status quo, most of the voters on the far left (in Mélenchon's camp) or with the neoliberal Republicans (in Fillon's camp) cannot bring themselves to vote for Le Pen. Many will hold their noses and vote for Macron even if they detest him. And many will simply stay home and "voter blanc," as in "none of the above." In the national TV debate on Wednesday, Le Pen did not do well. She came across as shrill and less-than-well-informed--though this certainly did not hurt her among her supporters. It may even have helped plant seeds of paranoia among "the forgotten" (or "les oubliés," as Le Pen like to call her constituency)--like the charge that Macron has a secret offshore bank account in the Bahamas.
Here is one recent estimate of what first-round voters will do on Sunday.
If these numbers are at all accurate, a victory for Le Pen seems very unlikely. At this point, what she realistically hopes for is that the vote will be a lot closer than the pollsters expect. First, she's looking to translate the higher enthusiasm of her supporters into a higher actual vote turnout. Second, she's doing everything she can to give voters on the left an excuse to stay home--even if they won't vote for her. Over the last week, she has turned down the dial on xenophobia and turned up the dial on soaking the rich. If she does well enough, she could play a decisive role in the upcoming legislative elections (unlike Macron, she at least has the semblance of a political party) and loom over Macron's presidency like a dark cloud, ready to blast him at every wrong turn.
What does this election mean, longer term, for France? The outlook is not as bright as the markets suggest. I don't mean to minimize Macron's strengths. He's young. He's smart. He's optimistic about the future. He's economically literate. But with a waffling policy platform, he has no mandate to change anything fundamental about France's direction. Indeed, the only thing most those who vote for him on Sunday can agree on is either that the status quo is OK for now or that the alternative is worse. The problem is, France needs fundamental change.
The incumbent president François Hollande achieved the dubious distinction last year of becoming perhaps the only major national leader in modern times to see his approval rating fall literally into single digits. Macron's platform and mandate is really not that different from Hollande's. (According to one House of Cards account, Hollande deliberately dredged up and leaked the incriminating evidence about Fillon to ensure that another socialist would succeed him.) Should we expect Act 2 to end much differently from Act 1?
An instructive parallel here would be Matteo Renzi, another young, smart, optimistic, center-left leader--and a personal friend of Macron's. (Macron just congratulated Renzi for being re-elected as leader of Italy's Democratic Party.) But like Macron, Renzi has been running on a thin, mostly technocratic agenda. And Renzi's political star has fallen almost as quickly as it rose. Along the way, Italy--which must hold a new general election less than a year from now--has become the most likely domino to drop on the EU's fragile unity. Yes, France is safe for now. But only for now.
