France at a crossroads - HSBC

In view of the analysts at HSBC, following televised debates, the most recent on 4 April, the leading candidates (Emmanuel Macron and Marine Le Pen) have been stable in the polls.

Key Quotes

“But far-left candidate Jean Luc Mélenchon is a man on the move. Indeed, if he can maintain this momentum and perform strongly in the next media shows, he could even come third in the first round, pushing the two traditional big parties into fourth and fifth place.”

“Macron and Fillon promote supply side reforms

France is one of the most regulated economies in the OECD. Centrist independent Macron and Republican candidate François Fillon propose reductions in companies' social security contributions to boost employment and firm-level (rather than sector-wide) labour negotiations. They also advocate fiscal discipline and accept the EU's deficit reduction targets, although they would close the deficit at different speeds. But both would face political challenges to deliver their policies: Macron because he lacks a traditional party to back him in the June parliamentary elections and Fillon because he is being investigated for potential misuse of public funds.” 

“Marine Le Pen promises prosperity via protectionism

By contrast, Le Pen and Mélenchon take a more nationalist and protectionist view, proposing tariffs and a changed relationship with the EU.  Indeed, Le Pen aims to hold a referendum on both EU and eurozone membership. She also aims to reduce the public finance deficit, although her GDP growth forecasts are more optimistic than those of the other candidates. And both Le Pen and Mélenchon argue for direct financing from the Banque de France, which is not without risks. Indeed, macroeconomic uncertainty could rise significantly. In turn, borrowing costs and inflation expectations might rise sharply. And these could be amplified by rapid currency depreciation, should Le Pen succeed in taking France out of the euro.” 

“Personalities or policies?

Economic policies are important, but surveys show other policy areas and personalities also matter. This will be important for second round voting. While Macron and Fillon are broadly similar on economics, polls indicate around 30% of Fillon voters and 11% of Mélenchon supporters may switch to Le Pen (IFOP, 4 April) in the second round.”