12/06/2017

Macron’s parliamentary win eases political risk

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The remnants of Europe’s political risk have lifted, leaving markets to refocus on fundamentals


By Samy Chaar, Chief Economist Lombard Odier.


 

With the French President Emmanuel Macron’s centrist party poised for an overwhelming majority in the country’s parliamentary elections, the remnants of Europe’s political risk have lifted, leaving markets to refocus on fundamentals.

Results of first-round voting in the country’s parliamentary elections confirmed momentum for Macron as his La République En Marche party secured 32% of the votes. This victory comes despite a record low voter turnout of just 51%.

Should the party’s momentum be sustained into the second round, La République En Marche and its allies are projected to win an absolute majority of between 400 and 455 of the 577 parliamentary seats available. This result would see Macron presiding over one of the largest parliamentary majorities in post-war France.

Meanwhile, any residual concern surrounding the influence of the National Front’s anti-EU rhetoric on French politics abated overnight as the party secured only 13% of votes. On this basis, the National Front would have less than 10 members of parliament – significantly short of the 15 members necessary to constitute parliamentary group. This would render it a non-existent opposition force in French politics. It is worth noting that this outcome is the latest in a series of results in European elections where Eurosceptic parties have underperformed expectations, including results in Austria, the Netherlands, and the presidential elections in France.

Similarly, the Socialist Party, with only 10% of the vote, in our view, is unlikely to survive as a recognised parliamentary party.

Armed with a solid majority, Macron will have the parliamentary support necessary to govern and, therefore, the mandate to implement the policies he outlined during his presidential campaign. An inability to deliver of this agenda – including plans to loosen France’s stringent labour laws, implement fiscal reforms and transform the welfare system – will fall squarely on his shoulders.

Coming into this election campaign, the outcomes of the French presidential and parliamentary votes were seen as a high-risk event for Europe. They have now culminated in an opportunity for investors. The markets will be closely monitoring Macron’s ability to deliver, given the lack of obstacles (political, at least) that lie in his way.

Elsewhere in the region, the failure of Italy’s three biggest political parties to agree on a new election law means that the country’s general election is now unlikely to take place before the spring of next year. This development has now removed the remaining political risk for Eurozone assets in 2017, and reaffirmed our conviction in our central scenario for 2017.

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