We think there’s only a modest chance that far-right candidate Marine Le Pen will win France’s presidential election. But a Le Pen presidency would rock Europe to its core, so it’s the biggest risk on Europe’s political calendar.
France’s Presidential Election
The Run-up to May 7
The election has two rounds of voting. The first takes place on April 23, with the two top candidates advancing to a head-to-head contest on May 7. Recent opinion polls have consistently shown that Le Pen, the National Front leader, will likely win the first round. Unless something changes, we put the chances of her moving on to the second round at around 90%.
It’s more difficult to know who will face her in that contest. Until recently, the favorite was center-right Republican party candidate Francois Fillon. But damaging corruption allegations might force Fillon to withdraw and make way for another Republican candidate.
So far, centrist candidate Emmanuel Macron has been the main beneficiary of Fillon’s spiral—Macron now occupies second place in opinion polls. But Fillon’s fall from grace shows we can’t take too much for granted at this early stage—a lot could change between now and polling day.
Odds Stacked Against Le Pen Prevailing
All indications suggest Le Pen will take the first-round vote, but her prospects of winning the second round look much more remote. Recent opinion polls suggest that Fillon would beat Le Pen by 15–20 points and that Macron would beat her by almost 30 points.
Of course, opinion polls could be sending false signals about Le Pen’s second-round chances. But until we see some evidence of this, or signs of a shift in public opinion, we’re inclined to think the odds are stacked against her.
So, while we see a 90% probability of Le Pen reaching the second round, we put the probability of her actually winning the election at a much lower 15%–20%.
With the campaigns barely under way, we think Macron and Fillon (or an alternative center-right candidate) are equally likely to win; we assign probabilities of 35%–40% to both. Socialist party candidate Benoit Hamon is a clear outsider, with a probability of only 5%–10%.
For financial markets, there probably isn’t much difference between a Macron or Fillon victory: both have reformist agendas, and a victory for either would likely lead to a modest relief rally. The same would not be true for Hamon: he’s from the left of his party and plans to introduce a shorter working week and guaranteed minimum income.
A Le Pen victory would be much more damaging. While some aspects of the National Front’s populist agenda are being echoed in other countries—including more protectionism and stricter immigration controls—Le Pen also wants to regain monetary, legislative, territorial and fiscal sovereignty from the European Union (EU). This would involve quitting the euro, restricting the free movement of people and abandoning EU debt and deficit limits.
Some observers have rightly pointed out that it would be very hard for Le Pen to achieve these goals without a parliamentary majority (she has little to no chance of this). But that’s hardly the point.
At best, a French president hostile to the euro and the EU would plunge the union and its decision-making processes into chaos. At worst, it could mark the beginning of the end of the EU.
Potential Ramifications of a Le Pen Victory
The market reaction to a Le Pen victory would likely be severe. France, whose importance for economic and political integration in Europe has helped keep its debt yields closer to those of Germany than fundamentals might warrant, would likely see yields rise sharply.
Nor would the rest of the euro area escape unscathed. Even though Le Pen would struggle to implement her program, there’s little doubt that a National Front victory would lead investors to think that a euro-area breakup was more likely. This would drive peripheral yields higher and German yields lower, while putting downward pressure on the euro’s exchange rate.
The European Central Bank (ECB) wouldn’t stand idly by. But would ECB action be effective if the president of France were actively pushing in the opposite direction? A Le Pen victory may be a low-probability event, but would have very profound implications.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. AllianceBernstein Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom.
Article by Darren Williams, Alliance Bernstein