Emmanuel Macron has swept to victory in the French presidential election after going head-to-head with Marine Le Pen on Sunday. Leader of the independent En Marche! (On the Move!) party, Macron won with an estimated 66% majority and will become the youngest-ever president of the Fifth Republic.
After seeing off the other contenders in Republican candidate François Fillion and far-left Jean-Luc Mélenchon in April, pro-EU Macron was up against National Front candidate Le Pen in the second round.
Le Pen’s defeat comes 15 years after her father Jean Marie Le Pen’s own mission to the Elysée Palace was cut short in the second round. Despite her defeat, she is still estimated to have won 11 million votes, a record for her anti-immigration and anti-EU party.
Market reaction to French election
Elections can often send shockwaves through financial markets due to the uncertainty of political change. Marine Le Pen has promised radical change, especially regarding France’s membership of the European Union and the euro currency, which has put the market on edge.
Whilst the polling before the first round pointed to a tight race among the four leading candidates, the polls painted a clearer lead for Macron in the second round. This is why the market response so far has been relatively muted.
Good earnings results from companies on the continent have strengthened European markets over the last few weeks and the spread between French and German bonds are looking comfortable. That spread has been used to measure political tension in the eurozone around the election.
What does the French election result mean politically?
Once pro-EU Macron has moved into the Elysée Palace, focus will turn to solving crucial issues in the French economy.
His main policies are:
- Reduce corporation tax from 33.3% to 25%
- Invest €50 billion in education and skills training
- Create a single budget for capital gains
- Reduce public spending by €60 billion
- Strengthen the EU border police, create a European Defence fund and launch an EU budget to invest in the future, provide emergency financial assistance, and respond to financial crises.
Savers and investors will hope the level of political instability will now simmer down and economic growth will be stable as the new president settles into his new job. Macron will want to keep the French deficit within the 3% mandated by the EU and reduce high levels of unemployment.
France isn’t out of the election season just yet: it still needs to elect its parliament in June. These parliamentary results will give a better indication of how easy it will be for the new president to fulfil his campaign pledges. At least the political transition should be smooth.
Political risk is a big feature of the current economic and political environment. Recent history teaches us that predicting market movements isn’t easy and that the implementation of policies promised on campaign trails doesn’t always go smoothly.
Avoiding any knee-jerk reactions to geopolitical events, investors should stick to their medium/long-term investment strategy and look to diversifying their portfolio to balance any near-term risk as markets look to shake off any jitters.