French Elections

With the Dutch elections over, the Euro has breathed a sigh of relief. As Geert Wilders’ nationalist Freedom Party fell short in the parliamentary elections on March 15, the euro gained nearly one percent against the US dollar, albeit on a day when most currencies strengthened versus the greenback. While Wilder’s party suffered a spectacular collapse in polls in the immediate run up to the election, there was never any serious concern that he would be running the Dutch government. By contrast, the upcoming French Presidential election in April has the potential to be a much bigger source of volatility for the euro, as well as other currencies, equities and bonds.

France votes in two rounds. Round one takes place on Sunday, April 23, and the top two vote getters will proceed to the second round on Sunday, May 7. On both days, the French government will issue an exit poll at 8:00 pm Paris time (7:00 pm London, 2:00 pm New York and 1:00 pm Chicago) with a preliminary projection of the winner. It appears likely that one of those two top vote getters will be Marine Le Pen of the National Front who promises, among many other things, to hold a referendum on France’s memberships in the European Union (EU) and in the Euro currency that spans 19 countries. As such, a Le Pen victory holds the potential to roil the markets in the way that the surprise Brexit vote did in 2016.

On the face of it, she seems unlikely to win. Recent polls have put her at 20-30% behind her most likely second round opponent, the pro-European centrist Emmanuel Macron (Fig.1). She trails her next most likely second round opponent, the center-right Francois Fillon, a former Prime Minister, by a 10-20% margin (Fig.2). Fillon is also pro-Europe.