Macron the centrist-populist

Macron’s centrist ideas are increasingly appealing to a French electorate that is used to frequent and sclerotic shifts in the government between the left and right. We believe the French OAT – German Bund 10-year spread is likely to tighten further as Macron the centrist-populist rises in the polls.

The centrist candidate for the French presidential election, Emmanuel Macron, finally outlined his policy platform. His programme is liberal, pro-growth and pro-European. In our opinion, Macron’s strongest advantage is the coherence of his proposed reform of the labour market, including the relaxation of the 35-hour law. However, some of his proposals are broadly a compilation of the most popular left, right and center parties’ ideas. Taken from the left, Macron proposes a universal unemployment benefit to independent workers, financed by taxes. Taken from Republicans, Macron wants to cut corporate taxes from 33.3% to 25% closer to the European average. Even taking ideas from the Front National, Macron addresses national security issues proposing to increase the police force and creating specific penitentiary for “foreign fighters”. His goal is undoubtedly to unite the French people against the corrupt political elite, with the timing of the Fillon’s scandal generating an increasingly receptive audience. While Fillon is struggling to clear his name after being accused of fictitiously employing his wife and children, Macron proposes to forbid parliamentarians from hiring members of family.

Macron’s centrist ideas are increasingly appealing to a French electorate that is used to frequent and sclerotic shifts in the government between the left and right. The latest polls see Macron gathering 24% of the votes in the first round – just 1 point behind Marine Le Pen – and winning in the second round with a large majority (65%). We believe his newly published policy programme, while a bit light on details, could attract undecided and disappointed voters from the other camps, notably from the Republicans. That would dramatically increase his chances of winning the election. From a market perspective, the rise of Macron’s probability of winning the election is perceived as a positive development. The French OAT – German Bund 10-year spread tightened almost 20bps since the beginning of last week, while remaining elevated from an historical perspective. We believe the spread is likely to tighten further as Macron rises in the polls.

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Populism or clever political move? Whether Macron is seen as a populist or a demagogue will depend on the feasibility of his proposals. So far, Macron’s programme is missing details on its implementation and the impact on public finance, growth and employment. There is also a lot of uncertainty around who will form Macron’s government.

Morgane Delledonne, Fixed Income Strategist at ETF Securities

Morgane Delledonne joined ETF Securities as Fixed Income Strategist in 2016. Morgane has an extensive experience in Monetary policy, Fixed Income Markets and Macroeconomics gained at the French Treasury’s Office in Washington DC and most recently in her role as Macroeconomist and Strategist at Pictet&Cie in Geneva. Morgane holds a Bachelor of Applied Mathematics from the University of Nice Sophia Antipolis (France), a Master of Economics and Finance Engineering and a Master of Economic Diagnosis from the University of Paris Dauphine (France).