On April 10, 2022, the first round of the French presidential election will take place, with the potential second round scheduled for April 24. The election is expected to be a close race between incumbent President Emmanuel Macron and either Valérie Pécresse of The Republicans or Marine Le Pen from National Gatheringwho are currently leading the polls for the first round.
Unlike in 2017, discussions of leaving the EU are absent from the election campaign, even if the political landscape remains skewed to the right. Our base-case scenario (60% chance) is that Macron gets another term as president, but with the risk of a weaker parliamentary majority to implement his policies. In the event of a Pécresse presidency (35% probability), economic policies would probably not change dramatically in our view, while fiscal consolidation efforts could become more important. A Le Pen presidency (5% probability) would likely imply a more domestically focused France, with increased uncertainty over economic and fiscal policies.
The outcome of the elections will also have important implications for Europe. With Angela Merkel’s departure from the political scene and the Italian government on shaky ground, a new European leadership vacuum could open up if President Macron fails in his bid for re-election. While France has weathered the economic fallout from the COVID-19 pandemic better than other eurozone countries, fiscal fragilities could also come back to haunt.
As the potential for surprise in the French elections remains high, we believe it is possible to price in a higher election risk premium in the bond markets. The impact of the elections on the EUR/USD should be mitigated in our view, but the reform of the EU fiscal rules will be essential to follow.