When Is The French Election and What Does It Mean For The Euro?
The first round of the French election takes place on the 23rd of April wherein 11 candidates are expected to participate followed by a run-off of the top two on 7th of May, 2017. Current opinion polls suggest that far-right candidate Marine Le Pen will face off against Emmanuel Macron in May.
Why Does The French Election Matter So Much?
France is the second largest economy in the E.U. behind Germany (who will have their elections later in the year.) This year’s election is one of the most contentious in recent history as the world waits to see if France ends up following in the footsteps of the U.K. and U.S. by voting for a party which may want to leave the European Union.
Why Is Europe Facing These Challenges Now?
The global financial crisis (GFC) of 2008 has fostered a mistrust of capitalism and deepened anti-bank sentiment in many countries and France is no exception. While other major economies around the world have largely recovered, the eurozone’s woes are still far from over as the sovereign debt crisis continues to plague critical member states including Italy, Spain and Greece.
Wealthier nations are tired of bailing out their struggling neighbours, and a sudden influx of migrants and refugees has put added pressure on politicians to define their stance on immigration and border control.
Who’s Who Amongst The French Election Candidates?
Marine Le Pen
Le Pen the National Front candidate who was amongst the first to congratulate the Americans on the election of Donald Trump. She’s also the daughter of Jean-Marie Le Pen, the former leader of the National Front. She advocates for national sovereignty, tighter immigration controls, and rejects the elites while running on the slogan ‘in the name of the people’. Le Pen believes globalisation is a form of permissiveness that has fostered Islamic fundamentalism and allowed it to spread. She wants to close mosques and deport foreigners with militaristic Islamic ties, and she believes the E.U’s days are numbered.
A former member of the Socialist Party, Macron now stands under the banner of a progressive movement born in April 2016 called ‘En Marche!’. He was dubbed the ‘Mozart of finance’ during a four year stint at the prestigious Rothschild investment bank. Now Macron is feeling some backlash from a population still reeling from the GFC. As a centrist candidate, Macron has weathered pointed attacks from more socialist and populist party members who call him the ‘candidate of finance’ and demand the list of his wealthy donors. He was formerly Minister of the Economy and is credited with putting through a variety of business-friendly reforms.
This pro-business Republican party candidate is currently under investigation for corruption in a scandal dubbed ‘Penelopegate’. Fillon is accused of paying his British wife and children over a million euros from state funds for minor secretarial work. He’s pro-competition and wants less government intervention in business.
Hamon is the left-wing Socialist party candidate who had a surprise win the Socialist party primary against President Hollande’s former prime minister. The Socialist party is currently in power, but Hollande announced he would not seek a second term due to low approval ratings after supporting a series of pro-business policies. The more leftist Hamon wants to tax robots, cut the workweek to 32 hours, and introduce a baseline monthly wage for all.
Far left candidate Jean-Luc Mélenchon is in a tight race with Hamon, but with the left splitting their votes between the two, neither are likely to have enough support to take on the frontrunners Le Pen and Macron. Mélenchon wants a 90% income tax rate on the rich.
Why Has Le Pen Gained So Much Ground?
In recent years, France has has seen several terror attacks in the name of Islam, which have triggered an unsurprising anti-Islam backlash amongst some constituents. (Muslims make up about 7.5% of the total population in France.) Armed guards present in most major department stores in the tourist-haven of Paris serve as a daily reminder of the attacks. At the same time, unemployment remains above 10% and many blame the situation on the free flow of workers from other parts of Europe.
Why Is Macron Doing so Well?
In France, the government routinely intervenes in the corporate world with equity positions in 81 companies and a firm stake in hundreds more.1 Government intervention in business has routinely been accused of short-sightedness where political motivations have long-term ramifications. Taxes are some of the highest in Europe and the government has passed a variety of labour laws, which can make it difficult for companies to be profitable in France.
(Many multinationals have their European headquarters next door in Switzerland.) Macron’s political history has seen him promoting business interests. In addition, far left candidates have somewhat divisive policies that pushed moderate liberals toward Macron.
So the question is: will France move to cast off some antiquated policies which inhibit businesses? Or will it vote to regain control over its borders and potentially leave the E.U.?
French election impact: the upside of the euro’s decline
If the euro declines in the wake of the election due to fear of Frexit, there are a number of benefits for your personal finance objectives.
- Overseas investment opportunities may increase. International diversification through stocks may become increasingly profitable for investors based outside the continent. Some of Europe’s biggest companies include Total, Volkswagen, Royal Dutch Shell, ING, Allianz, Unilever and L’Oreal. With the German elections in the months to come, a bit of hedging may prove a successful strategy.
- Property could become a bargain. For those seeking a second home or investment property overseas, expect foreign investors to swoop in if the euro declines more than about 3%. Assess potential property investment locations sooner rather than later, if you want join them.
- Study abroad and European holidays just got more affordable. If you’re planning a stint overseas, you may want to use a Limit Order to set a target exchange rate for any upcoming money transfers. Doing so will allow you to capitalise on sudden market movements, so you get the rate you want.
How High Might The Euro Go?
If, however, a business-friendly president comes to power, the euro could see a substantial boost. If you prefer the rates as they are today, protect your bottom line with a Forward Contract that lets you lock in a rate for up to 12 months. Vive le currency risk management!
Vive le currency risk management!
IMPORTANT: The contents of this blog do not constitute financial advice and are provided for general information purposes only without taking into account the investment objectives, financial situation and particular needs of any particular person. UKForex Limited (trading as “OFX”) and its affiliates make no recommendation as to the merits of any financial strategy or product referred to in the blog. OFX makes no warranty, express or implied, concerning the suitability, completeness, quality or exactness of the information and models provided in this blog.