Et maintenant?

With the first round of the French presidential election running exactly to script, the markets today breathed a huge sigh of relief. To recap, Emmanuel Macron and Marine Le Pen made it through to the final run-off, polling 24.01% and 21.3% of the votes, respectively, followed by Francois Fillon (20.01%) and Jean-Luc Mélenchon (19.58%). This was pretty close to what the polls had predicted ahead of the election. With the polls suggesting that Macron will win the final runoff by a margin of around 60-40, the markets decided to get their celebrations in early. On the basis that Frexit will not now happen, the CAC40 posted a gain of 210 points today (4.1%) which is a bigger increase than has been mustered year-to-Friday (197 points). They may be overdoing it!

I have said all along that I did not expect Le Pen to make it to the Élysée Palace, and although we have to wait another two weeks for final confirmation, that looks like a pretty good bet. Assuming that is the case, what happens thereafter? Amidst claims that the French political establishment has been overturned, with neither a traditional left-wing nor Gaullist candidate making the final round for the first time since the establishment of the Fifth Republic in 1958, it should not be overlooked that Macron himself is part of the old establishment. He is a graduate of l’École nationale d'administration (ENA) and a former member of the socialist party who served as Economy Minister between 2014 and 2016, where he pushed through a series of business-friendly reforms. He is also a traditional Europhile who believes deeply in the aims and objectives of the EU (although he has denied that the label is an accurate description of his position).

Indeed, he may be further ahead of the Germans in this regard as he has previously stated that he is in favour of a euro zone budget and the issuance of common euro bonds. Macron is also expected to take a fairly conciliatory approach to Greece’s problems. But for all that he is in favour of economic positions currently not in line with those espoused by Germany, there is a strong sense that he will be in a position to strengthen the Franco-German axis and provide impetus to the flagging EU project. That is, of course, so long as he is secure at home. Macron’s En Marche! movement is not a conventional political party – it was only founded last year – and he may not have enough support in the National Assembly to pursue his domestic agenda.

We cannot write off Le Pen just yet, however, and in a bid to rid herself of the stigma associated with the far right politics of Front National, the party founded by her father, she tonight stepped down as head of FN. Writing in Project Syndicate last week, Zaki Laïdi, Professor of International Relations at Sciences Po, wrote “France has not endured such political turmoil since 1958”. A distrust of elites, fear of globalisation, rising economic inequality and a renewed emphasis among voters on national identity leaves France – along with any other European countries – in a very febrile state. Le Pen taps into the anti-establishment Zeitgeist but although much of the commentary on this side of the channel focuses on her promise to hold a referendum on France’s position in the EU, I suspect that even she will not be able to deliver Frexit.

The bigger problem for both candidates is that neither of them really has a magic bullet to offer the voters. Whoever wins the election will have to make some unpopular choices to make up for the fact that reform progress has been delayed for so long. Outgoing President Hollande’s policies did not move the dial forward. His predecessor, Nicolas Sarkozy, was occupied with the fallout of the 2008 crash whilst the Chirac years of 1995-2007 were hampered by his early failures to push through economic reforms in the face of intense political opposition. France is undoubtedly still a major economic and political power, but like an athlete who has been away for too long, the economy is out of shape and struggling to cope with fitter rivals – locally Germany, and further afield from the rise of China.

Like the UK, France is a proud country with a long history, but it is unable to throw its weight around like it once did. Just as the Brits expressed their frustration by voting for Brexit, so the French have opted to overturn the duopoly formed by the socialists and the centre right. On 7 May, the electorate will thus be faced with a stark choice between an outward-looking Macron and an inwardly focused Le Pen. Whilst the polls suggest that French voters will opt for Macron, if he fails to deliver the prosperity and security that they demand of him, Le Pen and her supporters will continue to ratchet up the pressure. The arguments we will hear over the next two weeks will not end on 7 May – not by a long shot.