What will happen on the markets on Monday if Emmanuel Macron wins today in the presidential ballot? Or (more unlikely eventuality) if Marine Le Pen will win? To find out what the main investors think, you can take the street of the Vendôme square, that of the jewelers, in the heart of Paris, and go to house number 24, at the headquarters of a French asset management company, Carmignac, which is also one of the world giants in the sector. Its experts look after the wealth of the richest men in the world. Worried? Panic in sight if the tsarina of the extreme right will leap to the top of the country? We are greeted by Kevin Thozet, member of Carmignac’s investment committee, who is waiting for tonight’s result with a reassuring manner. He puts his hands on: not even the Le Pen option seems to scare him completely. Calm and cool.
Let’s start with Macron. What happens if he wins?
«It will be continuity. And it will generate a positive impact on the euro, which will strengthen. As regards the bond market, initially we will see the spread, which measures the risk, between OATs, French bonds, and Bunds, German government bonds, narrow. Then, over the medium term, interest rates on OATs should rise, thanks to a reassuring prospect of continuity. As for the equity markets, some relief should be felt in the near term, but I don’t think the French presidential elections are the main concern for these investors. I don’t think, for example, that for a group like EssilorLuxottica, listed in Paris, French politics has a greater impact ».
And instead, what if Le Pen will prevail?
«The euro will probably weaken in the short term, because it is a candidate who has always been out of the system, has unorthodox policies and has never governed: therefore, it is a bit scary. Her arrival in power could strongly depreciate the euro, also because her measures are not aligned with a more federalist Europe. And the spread between the OAT and the Bund would widen in the short term. The stock market could also suffer ».
Is there a certain panic in the financial markets in the face of a Le Pen victory?
«Let’s not exaggerate, because a president in France does not govern alone. He appoints a prime minister, an emanation of the parliamentary majority. And, in fact, there are the legislative elections in June. It is unlikely that you will be able to obtain a majority. On the other hand, Macron too will have many difficulties in obtaining it directly for his party. In both cases, “cohabitation” should be needed, probably in the form of a coalition for Macron. In short, there are many doubts as to whether Le Pen can implement all of his economic measures. Regardless of who is elected, in one case or another the emergency will be the management of the inflationary problem. It will be the big problem for both of us to solve ».
What are the most interesting economic measures in the two programs?
“As for Macron, we appreciate his aim to generalize the tools of participation in the capital and profits of companies by workers. This could help stem inflation. Prices rise and so do profits. With this participation, employees of an industrial and commercial company can take advantage of it. It is a response to inflation without weighing too much on the public deficit. To put an end to the inflationary drift, there are two possible ways: to do it in the American way, by increasing interest rates, or in the European way, with aid and measures that weigh on the public budget. Such a measure would lighten the effects of the European road ”.
And do you like something about Le Pen’s economic program?
“Yes, there is an interesting measure, the French sovereign fund that it wants to create. This project is still vague, but it would be financed by private funds and by savers to invest in industrial activities and infrastructure over the long term. This is a good idea: it would be financed by private savings and would not aggravate the public deficit. It would make it possible to redirect private savings, which today are turned too much towards bonds and funds in euros. These are investments that are generally not protected against inflation. With the Le Pen project, part of the savings would go to industries. It would represent a form of protection against inflation ».
Can a parallel be drawn between Le Pen and Trump? Would it be the same if she came to power?
“Not exactly. Trump had stimulated supply by severely reducing corporate taxes. He had carried out the typical politics of his party, the Republicans, very liberal. If he looks at Le Pen’s program, he’s not that liberal. There are measures that go in this direction, such as the sovereign fund project. But then there are public subsidies to both citizens and businesses that are not part of a properly liberal policy. Of course, when he plans to exempt all young people from IRPEF, even entrepreneurs, under the age of thirty, this could favor the development of new startups. However, his economic program is fundamentally different from Trump’s: she wants to develop demand above all, he wanted to develop supply ».
What are the repercussions on the public deficit of the two candidates?
“It would get worse with both Macron and Le Pen. But with the latter much more… ».
Is it really a problem?
«Yes, due to the effects on the risks on OATs and on French public bonds. The state will have to pay more interest to finance itself. This has been seen in Italy, where the cost of debt has risen due to the rise in debt. If, in the event of Le Pen’s victory, the share of public debt in GDP reaches 120-125%, as expected, at the end of his mandate, France would have to pay more to refinance itself. However, as I have already said, it will be necessary to see how the laws will go. It is the parliamentary majority that determines the government ».
Will the results of the presidential elections affect the decisions of the ECB?
“Yes, it is possible. If Macron is elected, he could encourage the ECB on the path to normalization and to raise interest rates ».
In France there is always a loose cannon, the possibility of social protests …
“Given the current inflationary trend, which is not temporary, both Macron and Le Pen may be under pressure from social movements, such as that of the yellow vests. It is a risk that would be expressed in a different way, but which both suffer ”.
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