EDITORIAL: France delivers welcome news
Emmanuel Macron’s rise has allayed fears France will become yet another large economy to succumb to right-wing populism
After 2016’s shock Brexit and Donald Trump votes plunged many of us into depression about the state of the world, this week’s shock French vote will surely have done just the opposite.
Centrist candidate Emmanuel Macron launched his En Marche! just a year ago and until recently, no one would have thought that the 39-year-old could post a clear win in the first round of France’s complicated presidential election. But Macron took 24% of the vote, ahead of the 21% of second-placed National Front candidate Marine Le Pen, a right-wing populist who is virulently opposed to France’s membership of the EU.
With some of the unsuccessful candidates now throwing their weight behind him, Macron seems to be well ahead in the race to the presidency. The latest opinion polls predict he will win 61% in the second round on May 7, with Le Pen at 39%.
And at least in France, opinion polling seems to work. Where polls largely failed to predict outcomes in the US and UK in 2016, in France this time the polls predicted Macron’s first-round victory almost exactly.
Macron, a former Rothschild banker and a former economy minister under the Socialist government of Francois Hollande before he split with the Socialist Party, is an economic liberal who is avidly pro-Europe. He wants to relax labour laws, cut taxes and boost investment.
The prospect that he is likely to be president has allayed fears that France will become yet another large economy to succumb to right-wing populism. Perhaps even more important is that it has allayed fears that France would become the next country (after the UK) to exit the EU. The example of "Frexit" could then trigger other exits, taking the EU towards collapse.
Not surprisingly then, markets have responded to the news with huge enthusiasm — and not only in France itself, but across Europe and globally. Markets are betting on a Macron victory in May and the likelihood that Europe is safe and the good guys will be in charge of France’s economy has helped to feed into a new round of risk-on trades, which have helped to drive emerging markets higher, our own included.
The euro gained on Macron’s victory, while the dollar, which has been battered by doubts about Trump, weakened to its worst level to the euro in five months. That helped the rand break through R13/dollar on Monday, approaching levels last seen before the ratings downgrades at the beginning of April.
A Macron victory and stability would be important for SA’s real economy
Not that the rand’s strength against the dollar is just about external factors. Investors seem keen to believe that SA’s cabinet reshuffle won’t be as bad for the economy as may have been expected. That optimism may be misplaced, and markets, arguably, should not get too far ahead of themselves.
But a Macron victory and stability in Europe would be important for SA’s real economy, not just for its financial markets. Europe is SA’s largest trading partner, taking a quarter of its exports; France is SA’s third-largest trading partner within the EU. There is also significant French direct investment in SA. So the fortunes of the French economy matter to SA and the outcome of the presidential election is worth watching.
But whatever the polls might say, Macron is not a done deal. Le Pen has stepped aside as head of the National Front to contest the presidential election and she cannot be discounted. There was a shock late surge in support for communist candidate Jean-Luc Melenchon, and his supporters could side with Le Pen, putting Macron’s lead in jeopardy. Another risk is that many French voters may simply not vote because they think Macron has the election sewn up — or because they are not comfortable with either candidate.
For investors, as for voters, caution is advised.