Daily Management Review

New European hazard: Marine Le Pen


Marine Le Pen has been leading in polls during most of the year. In December, she ceded the ground a little, but still has a chance to be elected as President of France. This looks disturbing to market participants since the leader of "National Front" promises to hold a referendum on withdrawal from the EU and abandon the euro. This could affect not only European, but also the world’s economy.

Antoine Bayet
Antoine Bayet
Many believe that German Chancellor Angela Merkel is the most important link in the united Europe project. However, investors are worried not with her chances for reelection, but with chances of Marine Le Pen, leader of the "National Front", to become President of France. In 2017, elections will also be held in the Netherlands and probably in Italy and Greece. With such a high concentration of unpredictable events, effect of each of them is increasing dramatically.

Public opinion polls show that Marine Le Pen is now gaining about the same number of votes as Republican candidate Francois Fillon. According to Ipsos-Sopra Steria, if elections were held now, Fillon would receive 26-29% of the vote, and Le Pen - 24-25%. Their closest pursuer, former Economy Minister Emmanuel Macron, could get 13-18% of the vote. However, survey of Kantar Sofres suggests that Le Pen would lose to Fillon in the second round of elections with 34% against 66% of the vote.

Investors are worried with ultra-right Le Pen’s statements on migrants and her criticism of slow growth of the economy.

In addition, Head of "National Front" promises to hold a referendum on France leaving the EU, rejection of the euro and return to the franc. "If Le Pen wins, it will be even more shocking for the market than defeat of Merkel and Brexit. In any case, Britain has always used the pound sterling, but France’s refusal of the euro could lead to consequences worse than bankruptcy of Lehman Brothers in 2008," - said analyst Alan Miller of SCM Direct. Other countries may follow the example of France, which means that even Angela Merkel will be having difficulties in defending the single currency.

Le Pen’s victory is seems unlikely, but so were Brexit and Trump’s triumph.

If Angela Merkel loses the elections next fall, Germany will still have a pro-European chancellor. The situation is the same in the Netherlands: populist Freedom Party can get the most seats in the parliamentary elections in March, but the major parties are likely to unite and not allow its leader Geert Wilders to become Prime Minister. However, investors fear that the entire set of events represents a great danger altogether. Victory of Le Pen could lead to the fact that the delicate balance will collapse.

Le Pen will have to amend the constitution to arrange France's withdrawal from the EU. This is a complex task, which would require an absolute majority in both houses of parliament.

Yet, as example of the United Kingdom shows, the authorities may decide not to interfere with the will of the people. Do not forget that in 2005 people of France (and the Netherlands) voted against a draft of European constitution.

source: bloomberg.com