February 6, 2017 / 5:11 PM / a year ago

Look left for the next French election surprise

LONDON (Reuters Breakingviews) - The curse of the frontrunner is proving brutal in the French presidential race. Financial scandal has hurt the presidential chances of early favourite Francois Fillon, who came from behind to win the centre-right party’s primaries. Independent reformer Emmanuel Macron has gained, but there is also an opportunity for the business-unfriendly hard left to exploit.

Macron, rather than Fillon, is now expected to face far-right Marine Le Pen in the second round of the French presidential election – and will beat her handily if an opinion poll published on Monday is any guide. No doubt, this would be a relief for investors.

Le Pen’s promises to take France out of the euro zone and hold a referendum on EU membership have pushed up the cost of insuring against a French default as well as the yield premium that French bonds offer over German ones. But far-right pledges aren’t the only ones that businesses and money managers should be worrying about. There’s also potential for surprises from the left.

Benoit Hamon, who came from virtually nowhere to become the ruling Socialist’s presidential candidate, shares some economic sympathies with the hard-left Jean-Luc Melenchon, who is currently standing as an independent. For example, Hamon wants to tax robots and introduce a basic universal wage for all citizens. Melenchon’s platform includes rolling back labour reforms, a hefty hike in the minimum wage, and pay rises for public sector workers.

Neither left-wing candidate will make it through to the second round by running on his own. But forging a two-way alliance, or a three-way one that also includes the Greens, might give them a fighting chance. Monday’s poll showed Hamon was expected to win 14 percent of the votes in the first round and Melenchon 11 percent. Their combined score just about beats Macron’s 23 percent, though not Le Pen’s 26 percent.

Granted, there are obstacles in the way of such a coalition. It would be anathema to the reformist wing of the Socialist party. And Melenchon and his supporters find it equally difficult to stomach them. The quest for power can, however, make for unlikely bedfellows. Time for investors to consider the risk that the final presidential run-off might pit hard-right against the hard-left.


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