French elections: relief, but 'crisis not avoided yet' +++ Reaction from Deutsche Bank CIO
Monday 8th July
Good afternoon.
German news outlets are reacting to the surprising results of the second round of voting in the snap election in France. After storming to victory in both the European Parliamentary election (held on the 9th June) and the first round of voting in this election (held last Sunday), the far-right Rassemblement National, led by Marine le Pen, has been denied a majority in the National Assembly. This seems to have been achieved through the tactical organisation of candidates by the centrist Renaissance coalition (Macron’s group) and the left-wing Nouveau Front Populaire, led by Jean-Luc Mélenchon, precisely to avoid an RN majority.
The reaction is generally relieved, but the sentiment is clear: France is far from safe, and it is far from ‘business as usual’ on the European level as a result. Brussels, Berlin, and Frankfurt (read through for the view from Deutsche Bank’s Chief Investment Officer) are watching very closely to see the final outcome.
Süddeutsche Zeitung: “What Macron wanted to prevent, has occurred”
The SZ describes the result as exposing the ‘fragile construct’ of ‘Macronism’. The French have lost patience with his attempts to create a ‘post-ideological’ France.
“Macron recruited politicians from the right and left with the promise of making sensible policies for the centre. He made the en même temps, the "both/and", his core message. His strategy soon reached its limits in France, a country traditionally unwilling to compromise. […] And Macron himself also moved further and further away from the centre he liked to talk about. […] Instead of seeing their president as a reformer and bearer of hope, the French increasingly perceived him as aloof, ignorant and authoritarian.”
The SZ’s simple assessment of the result’s meaning for Macron:
“It is still unclear what the government could look like after the election. But one thing is already clear: The Macronists will play a far less important role in the coming legislature than before.”
Die Zeit: “A sigh of relief for France, but not for Europe”
In quite a bad-tempered piece, Zeit’s Ulrich Ladurner reflects from Brussels on the difficult position in which the result still places Europe.
“Even if the RN has lost, Europe has not won. Jean-Luc Mélenchon, the leader of the victorious left-wing alliance Nouveau Front populaire, is anything but a convinced European. Although he has given up his demand to leave the EU, he has recently called for "disobedience" towards Europe. […] The man is a merciless populist. Even if he succeeds in forming a government, it will be characterised by internal conflicts, just like any other French government led by whomever. The parliamentary arithmetic simply does not allow for stable, strong governments.”
Ladurner then turns to “two politicians which demonstrate the fragility of the EU: Ursula von der Leyen and Viktor Orbán. Von der Leyen’s position as EU commissioner, he notes, is incredibly precarious, relying on votes from blocs across the political spectrum in the EU parliament, none of which are totally guaranteed. Meanwhile, Hungary has just begun its six-month rotation as President of the European Council. One of Orbán’s first acts since taking over the Presidency has been to visit Vladimir Putin, without clearing it with any other EU officials. Ladurner is incensed by this:
“How is the EU supposed to stand up to aggressive Russian imperialism if everyone does what they want without having to face any consequences? This is Orbán's message: I can do what I want! And apparently it is true: even he, the prime minister of a small member state with modest economic power, little cultural appeal and a tarnished reputation, can dance around on the EU's nose.”
His final, fundamental question is: where is Europe’s ‘motor’ now?
“We are dealing with a weak France and a fragile Europe, which raises the question of who can now vigorously advance the European cause. The ‘traffic light’ (coalition) in Berlin? Probably not, given how dimly it’s flashing. Italy, which is governed by Giorgia Meloni, whose favourite phrase is "La nazione" ("the nation")? Poland, for example, or Spain? They would be out of the question for weight reasons alone, but one realisation remains. Now that France is permanently weakened, the EU will have to practise its supreme discipline: muddling through.”
Handelsblatt interview w/ Deutsche Bank CIO.: “Investors will be watching the budget very closely”
This is an interesting interview with Christian Nolting, Chief Investment Officer of Deutsche Bank’s Private Clients division on just how political instability looks from a financial point of view.
"In almost every scenario, I expect the next government to plan for higher spending,"says Nolting. The disastrous effects of radical borrowing plans on UK gilt yields under Liz Truss are mentioned, though Nolting says that awareness of this incident will temper any potential radicalism among the new government in Paris.
He also adds that aside from extreme borrowing, which he considers unlikely, the worst shocks to markets would be come from suspicions of a ‘Frexit’ from the Euro or EU, which would require a referendum called by the President— moves Macron would never agree to.
Most interestingly, he describes how all the political uncertainty in Europe is having an increasingly deterrent effect on Asian investors:
"Asian investors do not differentiate so precisely between individual countries," he says. European share indices have performed worse than the US S&P500 index since the announcement of the new elections (in France).
Nolting’s comments are only partially borne out by a look at the CAC40, France’s national index, which fell slightly in value today after markets initially reacted positively to yesterday’s result.
Perhaps this is another element to a wider irony: now that post-Brexit, newly post-Conservative Britain looks like a comparatively stable country against this backdrop, global markets may start to look at Britain in quite a different way to the rest of Europe.
See also
This excellent profile of Macron by Politico’s Jamil Anderlini. I’m still trying to decide if Macron really is a tragic figure, or actually just a darkly comical one.
Hoping to resume normal tomorrow morning. Thanks for bearing with the post-GE delays (my sleep schedule has still not recovered…)/