On Sunday, it’s the first round of the French presidential election.
The two candidates who survive this vote will face off against each other for the French presidency on 7 May.
Pollsters, somewhat humbled by last year’s Trump and Brexit surprises, have always said this would be a close-run election.
Marine Le Pen of the National Front is the populist candidate, rattling cages with her talk of leaving the euro. And she seems certain to make it to the second round.
However, the market has rather taken comfort in the fact that polls have also always suggested that she’d almost certainly lose the 7 May vote by a significant margin to her rival – whoever he is.
But what they hadn’t bargained on was that Le Pen might end up facing off against someone just as populist and disruptive as she is…
A brief history of the 2017 French election
At the start of the year, the French election looked like it would end up being a race between two people (if one candidate gets more than 50% of the popular vote in the first round, they win outright, but that seems extremely unlikely).
I’ll sum up the candidates’ politics with reference to their rough British equivalents, although obviously there are plenty of cultural differences.
So one second-round victor is almost certain to be Marine Le Pen (who is like Nigel Farage, only more socialist). At first, everyone thought that the other contender would be Republican candidate, François Fillon (who is like Margaret Thatcher, only more socialist).
That didn’t sound so bad to lots of investors. Le Pen doesn’t win. Instead you get a centre-right French president who might make the place a bit more business-friendly and slightly less reliant on government spending.
Trouble is, Fillon then ran into some trouble for putting his family on the state payroll for doing jobs that they may or may not have actually done.
In came a new contender, Emmanuel Macron (who is like Tony Blair, only more socialist). He’s an independent candidate and former banker, who has set up his own party. Like New Labour, it borrows “from both the left and right”, notes the FT, and, like Fillon, Macron is also campaigning for economic deregulation.
As I’ve said many times before, it’s hard for foreigners like me to grasp the all-important details that matter to voters on the ground, whether you’re trying to judge the US election or the French one. But looking in from the outside, I’d say that the practical differences between Macron and Fillon aren’t particularly obvious.
Macron is younger, less socially conservative, and more globalist. But both men have targeted the 35-hour week specifically, and both argue that the French economy needs serious reform – Macron is just a bit more “cuddly” about it.
So it had looked as though France would end up with Fillon or Macron, both of whom are basically reformist-minded candidates. It’s quite possible that neither of them (Macron in particular) would have been able to garner enough backing from the French establishment to push through radical change. But neither would be disastrous, as far as markets are concerned.
But of course, the marvellous thing about markets is that they can always spring a surprise on the consensus at the last minute, regardless of how logical an outcome appears to be.
How France could end up with a very unpalatable choice
That’s where Jean-Luc Melenchon comes in. Melenchon is like Jeremy Corbyn… only more socialist. Like Corbyn, he’s a fan of the late Venezuelan president Hugo Chavez. You’d think that one look at Chavez’s legacy would raise some serious questions about the effectiveness of his policies in the mind of anyone with a shred of intellectual humility. Mais non, it seems.
Like Macron, Melenchon has created a new party. This one is called La France Insoumise, which translates to “Rebellious France”. Melenchon has also criticised the 35-hour working week – he reckons it’s too long, and should be dropped to 32 hours.
He wants a 100% income tax on earnings above €400,000 (clearly trying to appeal to all those investment bankers fleeing post-Brexit London). He’s talked about dropping out of Nato and he’s not too keen on the European Union either. And while he has a “nicer” approach to immigrants than Le Pen, he still reckons France would be better off without them.
In short, Melenchon is another populist candidate, only on the left rather than the right. And what’s really worrying everyone is that his stock has surged in the last couple of weeks.
Just now, Le Pen is expected to take 23% of the votes on Sunday. Macron is on 22.5%. So those two have been the leaders for the last few months, and they still are.
But last month, Melenchon was way behind on just 11%. Now he’s on 19%, polling neck and neck with Fillon. Meanwhile, the other radical left-winger in the race – Benoit Hamon (who is like Ed Miliband, only more socialist) – is on 8%.
Imagine if more Hamonites are swept along on the impassioned bandwagon of Melenchon. Imagine if Sunday comes and goes and by the time the votes are counted, it turns out that 7 May will involve a face off between a man who wants to “renegotiate” the EU treaties, and a woman who wants to leave the EU.
Imagine if 7 May offers France a binary choice between “unreconstructed communism and unrestrained fascism”, as one broker somewhat over-excitedly put it.
Imagine what markets would do on Monday if that’s what happened.
I’m not suggesting you do anything about it in advance. This is still a low probability outcome. But I would consider the scenario so that you don’t end up being taken by surprise and freaking out if it does happen.
I’d also not be in a huge rush to buy your holiday euros. If we end up with Macron vs Le Pen as expected, I don’t see there being a huge rally in the euro. But if it does end up being Melenchon vs Le Pen on 7 May, I’d expect euros to be a lot cheaper this time next week.