Never before have there been so many elections in a single year, and yet another one looms. After Le Pen’s Rassemblement National (RN) captured a staggering 31.5 percent of the vote in the European elections, compared to Macron’s 14.5 percent, the French president announced by-elections. On June 30 and July 7, the French will head to the polls once more.
For Macron, this is a high-stakes gamble. If the French election results mirror the European ones, Macron might be forced to appoint a prime minister from another party, potentially even an RN candidate. This scenario would severely limit his influence at the Élysée Palace for the next three years.
A parliament in deadlock
The motivation for these early elections partially stems from the persistent deadlock in the French parliament. The RN currently holds 88 of the 577 seats, making it the largest opposition party, while Macron’s coalition holds 249 seats, forming a minority government that necessitates constant negotiations with other parties.
Historically, it has been rare for the prime minister to hail from a different party than the president, occurring only three times since the establishment of the Fifth Republic in 1958. Should an RN prime minister emerge, it could propel Marine Le Pen towards a successful presidential bid in three years.
Potential shifts in European power
A Le Pen presidency, coupled with an RN parliamentary majority, would mark a seismic shift. Never before has a eurosceptic been positioned within the Paris-Berlin axis, the core of European power. Such a development could precipitate another euro crisis. Financially, France is teetering, akin to Italy, with French government bond yields remaining perilously low. A downgrade in France’s credit rating could see interest costs soar.
France’s budget, already burdened with a 5.5 percent deficit, cannot accommodate higher interest payments. A significant portion of tax revenue is already earmarked for social benefits and pensions, making any cuts likely to incite protests.
Historical precedents
Change in France tends to be revolutionary rather than gradual. The current Fifth Republic, established by De Gaulle in 1958, centralised power in the presidency. Its predecessor, the Fourth Republic, ended amid the decolonisation crises of Vietnam and Algeria.
The Third Republic, initiated in 1870, fell with the German occupation in World War II. The Second Republic emerged in the revolutionary fervour of 1848, while the First Republic began after the 1789 Revolution, ending with Napoleon’s coronation as emperor in 1804.
Socio-economic challenges
Tax hikes are untenable. France’s populace is divided into three main groups: urbanites, who can relocate globally if taxed excessively; residents of the banlieues, who receive more from the government than they contribute; and rural dwellers, whose incomes are largely consumed by fixed costs, notably energy. Macron’s proposal to raise energy taxes by 50 percent catalysed the Gilets Jaunes movement, as it decimated disposable incomes in rural areas.
Potential Euro crisis
During the previous euro crisis, Greece was bailed out—a manageable task given its economic size. Italy’s bailout was more problematic, with Draghi’s “whatever it takes” speech buying only time. Should France now require rescue, it would be a “too big to fail” scenario.
Rising French interest rates would exacerbate the budget deficit. To counteract this, the ECB might have to cut rates further, and a weaker euro could aid French exports. Meanwhile, Germany, once again the sick man of Europe, is in no position to save France.
Le Pen’s eurosceptic solution may be to exit the euro, effectively dismantling the European Union as we know it, and bringing an end to the Fifth Republic. This upheaval would coincide with France hosting the Olympics.
Vive la France, vive la sixième république.
Han Dieperink is chief investment officer at Auréus Asset Management. Earlier in his career, he was chief investment officer at Rabobank and Schretlen & Co.