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Why 95% of Traders Fail

Le Pen-ization of France, Europe’s Changing Political Landscape

Politics / France Mar 12, 2017 - 05:21 PM GMT

By: Dan_Steinbock

Politics In France, President Hollande’s utter failure to foster broad consensus for structural reforms has paved the way for the most contested election in decades. While public debate focuses on the 2nd round winner, the real story is that Marine Le Pen's agenda has already shifted the French political landscape.


In recent polls, the French presidential rivalry involves 3-4 viable candidates, which together account for 85-90 percent of the total vote. Until recently, the leader of the Front National, Marine Le Pen, and the centrist Emmanuel Macron, have each garnered about 25 percent in the polls. The two are followed by the center-right François Fillon, who has about 20 percent, and the socialist Benoît Hamon, with 15 percent.

While Le Pen may win the first round, she is not likely to win the second round, in which her popular triumph would be likely contained by a coalition of her adversaries. Yet, the future belongs to Le Pen's agenda which the next president must coopt to win - and coopt to sustain victory.

Who's afraid of Marine Le Pen

The French presidential election will take place in late April, but the real winner will be chosen in the second round in early May. Even if Le Pen won the first round, the consensus is that a centrist or a center-right candidate will win the second round.

Marine Le Pen (49) is the youngest daughter of the veteran FN leader Jean-Marie Le Pen, a French far-right politician who supported euro-skepticism, opposed immigration and pushed for law and order, traditional culture and values. As long as he led the FN, it was a marginal far-right, anti-Semitic party with politically incorrect neo-Nazi associations. In the past decade, Marine Le Pen has successfully “mainstreamed” FN away from the margins and extremism. Nevertheless, she has had difficulties funding her campaign because of the opposition of every French bank to her political platform.

In her campaign, Le Pen continues to support traditional values, law and order, while opposing immigration and the EU. As her campaign kicked off, Le Pen pledged a fight against “two totalitarianisms, globalization and Islamism” that seek to “subjugate France.” Running in the name of the French people, she reaffirmed the FN’s anti-immigration, protectionist and anti-EU stance. “The divide is not between the left and right anymore, but between patriots and globalists,” she said. “Financial globalization and Islamist globalization are supporting each other. Those two ideologies want to bring France to its knees.”

Le Pen wants to pull out of the Euro and a return to French franc, a referendum on EU membership within 6 months, and taxes on imports and the employment of foreigners in France. Building on Gaullist legacies, she is a critic of and wants to pull France out of the NATO. She would like to revise French relations with the U.S. and has denounced French bandwagoning toward Washington. Her France needs greater independence, believes in a multipolar world and neo-gaullist geopolitics.

The three anti-Pen musketeers

Emmanuel Macron (40) is a self-proclaimed proponent of a “third way” and the product of the elitist École nationale d'administration (ENA). After a stint as an investment banker at Rotschild & Cie Banque, he served in Hollande's socialist governments, where he advocated business-friendly reforms that were a poor fit with Hollande's socialist constituencies. Like Blair and the Clintons, Macron tends to support whatever is expedient at the time, whether it has been Rotschild’s neoliberal profits or Hollande’s bureaucratic socialism.

Married with his 24 year older high school teacher he first met at 15, Macron’s personal life and policy stances remain ambiguous. Last November, he declared that he would launch a social liberal bid under the banner of En Marche!. In public, this was legitimized as a new Clintonesque-Blairian ideology; in practice, it was necessary because Macron had alienated socialists while failing to gain enough support among conservatives; he lacked a party platform.

Of the key candidates, Macron is the ultimate Europhile and federalist, although he sees himself as EU-agnostic. He supports integration and structural reforms. In controversies about immigration, secularism, security and terrorism, Macron has favored a balancing act, which accounts for the perception that he avoids taking any stances. Ironically, that makes him valuable to neoliberal business, Brussels and Washington.

Born into privilege, François Fillon (63) became nationally known as President Sarkozy’s Prime Minister. Already years ago, he undertook controversial reforms of the labor code and the retirement system. He represents conservative Republicans (previously Sarkozy’s Union for a Popular Movement, UPM), France’s largest center-right party. Last fall, Fillon still seemed to appeal to the conservative “silent majority” in France, but that was before a widening embezzlement investigation following charges that he had paid his wife and children almost 1 million euros from the public payroll for little or no work. Rather than resign, Fillon attributed all blame to a “smear campaign” and has stayed in the game.

Just as Fillon thought he could get on with his presidential campaign, he was recently hit by more claims of financial irregularities as Canard Enchaine disclosed that he has also received an interest-free, undeclared loan of 50,000 euros from a French billionaire tycoon in 2013. If Fillon can remain afloat, he could prove a minority kingmaker in the second round - unless centrist forces can agree on a unifying candidate.

Known as an “Anglophile,” Fillon is a French Thatcherite. He would like to balance the budget and abolish the wealth tax. He would raise retirement age to 65 and reduce the public sector by cutting half a million civil-service jobs. He holds tough views about immigration, Islamic radicalism and terrorism. As a believer in realpolitik, he has called for dialogue with al-Assad's Syria and Putin. “In a Trump era,” he says, “Europe must spend more on military.” While he stands for the West, he sees the expansion of NATO to Russia’s borders in the 1990s as a provocation that was bound to alienate Moscow and foster redundant friction.

The last viable candidate is Benoît Hamon (49), a French socialist (PS) who defeated the centrist and business-friendly Manuel Valls in the party primaries. While he is portrayed as a new figure, he is a veteran party bureaucrat and has served in the European Parliament (2004-9), Hollande’s Junior Minister for the Social Economy (2012-4) and Minister of National Education (2014).

Hamon supports a basic income to all French citizens, a 35-hour workweek, legalization of cannabis and euthanasia, and huge investments in renewable energy. Unlike recent socialist leaders who have managed to widen the gap between business-friendly and pro-NATO social democratic leadership and the socialist and NATO-skeptical grassroots constituencies, Hamon represents the left wing of the PS and is an admirer of US Democrat Bernie Sanders. He is critical of neoliberal myths and the NATO.

In contrast, the more leftist Jean-Luc Mélenchon, who heads the new “Unsubmissive France,” would like France to leave both the euro and NATO. While Mélenchon has barely 10%+ support in France, the two might align to achieve a unified left position in May. Nevertheless, after years of Hollande's failed policies and plunging ratings, all socialist candidates face a steep uphill.

Coming shifts in French policy stance

Whether Le Pen wins the elections or not may not be the question. The real story is that the winning agenda that the next French president has been re-defined by the rise of Marine Le Pen. Domestically, the new president will push for (subdued) structural economic reforms with or without the consent of the unions, while taking a stricter view of immigration and a tougher stance against Islamic fundamentalism.

France will have a more critical stance toward further EU integration, and the euro. As even Hollande recently acknowledged, "for a long time, the idea of a differentiated Europe, with different speeds and distinct paces to progress, has provoked a lot of resistance. But today this idea is necessary. Otherwise, Europe will explode." If Le Pen wins, Paris will also start a process that could ultimately result in a 'Frexit.'

In foreign policy, the new president will be more cooperative with Russia and President Putin, from the Middle East to Ukraine and energy issues. While France may actually invest more in defense spending, the return of Gaullisme is predicated on greater skepticism toward the NATO and harder push for French national priorities. While Macron’s team has already suggested that Russia may be intervening in the French election, France is not as vulnerable to Russo phobia as the United States.

Furthermore, recent Wikileaks disclosures prove that it is not so much Moscow that Paris should be concerned about. In the 2012 French presidential election – as classified CIA “tasking orders” indicate – the agency engaged in a spying campaign ahead of the election. The documents reveal that all major French political parties were targeted for infiltration by the CIA's human and electronic spies in the seven months leading up to France's 2012 presidential election. According to the most recent WikiLeaks documents, televisions, smartphones and even anti-virus software are all vulnerable to CIA hacking, which makes any effort to shape the outcome of the impending elections and referendums in Europe relatively easy. Washington and Pentagon favor pro-NATO candidates and will walk the talk.

Even more important will be the net effect of the new economic policies. In Brussels, the greatest fear involves Le Pen’s quest to unilaterally take France out of the Euro in just 6 months, which would be followed by the effective redenomination of €1.7 trillion of French public debt into francs (80% of this debt is not under international law and thus FN would have the right to change the currency). Unsurprisingly, the ratings agencies have already warned that the net effect would be the largest sovereign default on record, nearly 10 times larger than the €200bn Greek debt restructuring in 2012. Like biblical prophets, Le Pen's adversaries have warned that her victory would mean a French Armageddon, the plunge of euro, and chaos to the world financial system.

In contrast, the FN argues that reintroducing a national currency that would fall in value against the euro would lower France’s total debt burden and thus allow Paris to begin competitive devaluation.

Domestic dead-end, international spillovers

The struggle for France is the direct result of half a decade of policy failures, which climaxed last summer in a failed effort to reform the French labor code. It was not the first time. Years ago, huge strikes forced President Chirac to back down from proposed changes in the pension system, just as they led to fierce union opposition when President Sarkozy raised the retirement age. However, under Hollande, a Socialist government has been pitted against unions and the ultra-left, which has fostered apprehension, disappointment and fragmentation on the left.

When the socialist Hollande replaced the conservative Sarkozy as the French president in May 2012, the latter’s ratings had plunged but Hollande’s popularity hovered at around 58 percent. By late 2016, his ratings had plunged to less than 5 percent. So his decision not to seek a second term was hardly a surprise. While France cannot avoid the overhaul of its labor legislation in the future, a socialist president cannot drive a neoliberal labor agenda; and that’s what Hollande tried to do.

After half a decade of near-stagnation, French economy has been benefiting from a cyclical rebound, thanks to a more accommodative external environment, especially lower oil prices, a depreciated euro, record low interest rates and the European Central Bank’s quantitative easing. Nevertheless, these shifts cannot compensate for France’s longstanding internal rigidities, which overshadow the economy’s medium-term potential. In the 1980s and 90s, French growth still exceeded 2.2 percent; in the 2000s, it hovered around 1.8 percent; now it is around 1.1 percent and likely to decelerate to less than 1% by early 2020s. In the past decade, French competitiveness, as reflected by the country’s share in world export markets, has declined significantly as well.

What’s worse, French real wage growth has been solid, despite declining productivity growth. The equation is unsustainable; it means that French economy is penalizing future generations for its current distortions. If the external environment grows still more adverse, while reform progress is hardly evident, French banks, given their size and interconnectedness, could generate adverse effects not just domestically but through spillovers, especially in Italy and emerging Europe.

France remains the world’s sixth largest economy. If it begins to shake, Italy cannot avoid a quake and ailing Eastern European economies could take multiple hits. That, in turn, would have adverse implications across the Eurozone and globally.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

The original, slightly shorter version was published by South China Morning Post on February 28, 2017

© 2017 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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