by Jamie Cater 30th November, 2016

What next? Europe goes to the polls

Focusing on France

It is perhaps a measure of the seemingly inconceivable political events of the last 12 months that the possibility of a self-proclaimed Thatcherite becoming the next President of France has raised so few eyebrows. Despite his fellow former Prime Minister Alain Juppé having been seen as the favourite to become the candidate for the centre-right Republicans, François Fillon comprehensively beat his opponents to emerge as the favourite in next year’s presidential election.

Fillon’s unexpectedly decisive win in the Republican primary has led some to cast his nomination as another shock to the political establishment. While it is difficult to argue that Fillon is not part of the establishment – he is, after all, a former Prime Minister – it is clear that some of his ideas are no less than radical in the context of historical French political discourse. He is a more passionate advocate of free trade and economic liberalisation than many past Presidents, proposing drastic cuts to public expenditure, an extension of the working week to 39 hours and further reforms to pensions. Marine Le Pen and the Front National have labelled Fillon’s proposals ‘economically insane’, while she seeks to emulate Donald Trump’s campaign rhetoric and pose as the candidate for the ‘forgotten’ French people. This in turn has led Fillon’s campaign to brand Le Pen as attempting to follow the ‘extreme left’.

Where Fillon and Le Pen’s ideologies have more in common is on the question of social policy and migration. The former has been an outspoken critic of multiculturalism, and his socially conservative views on integration of migrants and other issues could tempt some anti-immigration votes away from Le Pen. His foreign policy also overlaps with Le Pen, with his rhetoric often echoing Gaullist patriotism, criticising what he calls American imperialism, and emphasising French sovereignty and national identity. Le Pen may struggle to convince traditionally conservative voters who remain sceptical of the Front National brand to switch their allegiance in light of Fillon’s determined pitch to this part of the electorate.

As for Fillon and Le Pen’s main opponents, the French left is weak and divided; François Hollande has proved one of the least popular Presidents of the Fifth Republic, and Benoît Hamon, a left-winger, has already announced his candidacy after resigning from Hollande’s government in 2014. The prospect has been raised in recent days of current Prime Minister Manuel Valls seeking to challenge Hollande for the nomination if the incumbent President decides to run for a second term, having previously pledged not to oppose his boss. Should Hollande not stand again, it is likely to be a contest between Valls, on the moderate centre-left; former Education Minister Hamon; and Arnaud Montebourg, who was one of the candidates defeated by Hollande for the Socialist nomination in 2012.

When it comes to the election itself, the Socialist vote is likely to be squeezed by the presence of two challengers: Jean-Luc Mélenchon, the radical leftist who came a distant fourth in the 2012 presidential vote, and Emmanuel Macron, a former Economy Minister under Hollande who left the government last year to form his own, centrist movement, En Marche. While the Socialists will be confident that the selection of Fillon as the Republican candidate will mobilise the left-wing vote in the first round, it will remain fractured and some are questioning whether the left’s voters will turn out to back right-winger Fillon against Le Pen in the second round.

While Fillon will undoubtedly be a deeply unpopular candidate with the left, it is likely that enough voters will ‘hold their nose’ and vote for him in order to defeat Le Pen. Whatever the outcome, the picture will be mixed for investors; both candidates will want to present a pro-business agenda, but varying inclinations towards protectionism and a suspicion of the value of immigration between the two probable finalists are likely to prompt some caution among those looking to do business in France after next summer.

More rebellion this weekend?

The rise of right-wing populism could lead to two further electoral upsets this coming weekend, as voters in Italy and Austria go to the polls. In the former, Prime Minister Matteo Renzi is holding a referendum on constitutional reforms intended to strengthen the power of the executive over the legislature, prompted by concerns over the ability of the Senate to block prospective legislation and vehemently opposed by the other main political parties. Renzi raised the stakes of the vote by promising to resign from office if he loses the vote; this raises the prospect of right-wing populist movements such as Five Star gaining significant ground in an ensuing general election, plus Forza Italia, the party of Silvio Berlusconi and now a considerable Eurosceptic force within Italy, seeking to make electoral gains.

Austria’s vote on Sunday follows an attempt at an election earlier this year mired in controversy. After a first round in which the Eurosceptic, anti-immigration Freedom Party candidate Norbert Hofer finished in first place, he had then appeared to be narrowly defeated by the Green candidate Alexander van der Bellen before the contest was annulled. The latest opinion polls show the two candidates almost neck-and-neck, with Hofer edging slightly into the lead. While we know to be sceptical of the wisdom of polls, voters emboldened by the success of Donald Trump in the US and encouraged by signs of progress being made by the AfD in Germany, where voters are looking to punish Angela Merkel for her deeply unpopular migration policy, look likely to turn to Hofer as Austria’s next leader.

While both of these votes have the potential to send shockwaves through the EU and the Eurozone, their immediate impact should not be overstated. Any suggestion of an existential crisis or collapse of either the EU or Eurozone at this stage is an exaggeration and both continue to look relatively stable; nevertheless, investors should be mindful of the potentially turbulent times ahead in domestic European politics.

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