{"id":103822,"date":"2017-03-23T16:35:11","date_gmt":"2017-03-23T20:35:11","guid":{"rendered":"http:\/\/countingpips.com\/?p=103822"},"modified":"2017-03-23T08:40:18","modified_gmt":"2017-03-23T12:40:18","slug":"return-of-sovereign-france","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2017\/03\/return-of-sovereign-france\/","title":{"rendered":"Return of Sovereign France"},"content":{"rendered":"
March 23, 2017<\/div>
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Europe\u2019s Changing Landscape<\/strong><\/h3>\n

By Dan Steinbock, Paris<\/strong><\/p>\n

In France, President Hollande\u2019s utter failure to foster broad consensus for structural reforms has paved the way for a contested election. While public debate focuses on Emmanuel Macron as the savior of France, the real story is that Marine Le Pen’s agenda has shifted the French political landscape.<\/strong><\/p>\n

Before TV debates, the French presidential election featured 3-4 viable candidates, which together accounted for 85-90 percent of the total vote. Until recently, the leader of the Front National, Marine Le Pen, and the centrist Emmanuel Macron, have garnered about 25 percent in the polls, followed by the center-right Fran\u00e7ois Fillon (20%), and the socialist Beno\u00eet Hamon (15%).<\/p>\n

After merciless campaigns, scandals and mud-slinging, Macron has a very slight lead among first-round voters (27%), ahead of Marine Le Pen (26%) and Fillon (17%), while socialist Hamon has lost ground for far-left Jean-Luc Melenchon (12% each). French voters go the polls on April 23 and May 7 in the two-round election. Since no candidate can garner absolute majority in the first round, it is the second round that really matters. And in that race, Macron (64%) seems to have overwhelming lead against Le Pen (36%).<\/p>\n

Even if Le Pen would win the first round, she would face great odds in the second. Yet, in one sense, she has already won. In France, the political future belongs to her agenda (see Box: Elysee Palace\u2019s New Agenda).<\/p>\n

Macron\u2019s stance \u2013 and funders<\/strong><\/p>

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Emmanuel Macron\u2019s (40) current tie with or slight lead against Le Pen in polls is not based on his perceived success. His stint in Hollande\u2019s government as a business-friendly economy minister alienated most socialists while failing to win over most conservatives, not to speak of the French majority. However, as Fillon has been swept by an embezzlement debacle and socialists have failed to put up a fight, Macron is pretty much all that\u2019s left from the old French center-right elite.<\/p>\n

Politically, Macron is a proponent of a \u201cthird way.\u201d To him, political right and political left have less importance in the contemporary world. What matters is economic pragmatism. Like his heroes, Tony Blair in the UK and Bill and Hillary Clinton in the US, Macron advocates whatever is expedient, from Rotschild\u2019s neoliberal profits to Hollande\u2019s bureaucratic socialism. Over time, he may share the ultimate fate of Blair and the Clintons: initial excitement followed by disillusion and resentment.<\/p>\n

In reality, Macron is a typical product of the elitist \u00c9cole nationale d’administration (ENA). After a stint as an investment banker at Rotschild & Cie Banque, he served in Hollande’s socialist governments, where he advocated business-friendly reforms that undermined Hollande’s support among the government\u2019s socialist constituencies, while fostering Macron\u2019s clout among the socialist opposition and big business.<\/p>\n

Married with his 24 year older high school teacher he first met at 15, Macron\u2019s personal life and policy stances remain equally ambiguous. Last November, he declared that he would launch a social liberal bid under the banner of his new<\/p>\n

movement En Marche!. By design, the name of the party shares Macron\u2019s initials. He likes to portray it as a \u201csocial liberal party\u201d to attract the center-right movement, and a \u201cprogressive movement\u201d to court Le Pen\u2019s supporters and socialist dissidents.<\/p>\n

In reality, En Marche! is a one-man fa\u00e7ade. It is registered at the address of Laurent Bigorgne, director of Institut Montaigne director. It was launched with people representing corporate giants, such as the commercial real estate titan Unibail-Rodamco, the international banking behemoth BNP Paribas, and the aerospace mammoth Safran. The Paris-based Institut Montaigne promotes competitiveness and social cohesion. It was founded by millionaire Claude B\u00e9b\u00e9ar, former CEO of AXA, the French multinational insurance, investment and financial colossus, which is funded by the likes of Allianz, Bank of America Merrill Lynch, BNP Paribas, Capgemini, IBM France, McKinsey & Company, Microsoft France, and, of course, Macron\u2019s former employer, Rothschild & Cie Banque.<\/p>\n

Macron needed a new platform because he had alienated socialists while failing to gain enough support among conservatives. He is the ultimate Europhile and federalist. He supports integration and structural reforms. In controversies about immigration, secularism, security and terrorism, Macron has favored a balancing act \u2013 one that is well-aligned with the ideological position of Institut Montaigne.<\/p>\n

His real political success has been the ability to pick up endorsements from both center-right and \u2013left, including from Fran\u00e7ois Bayrou of the Democratic Movement, EU parliament member Daniel Cohn-Bendit, the leftist ecologist candidate Fran\u00e7ois de Rugy, and Socialist parliament member Richard Ferrand.<\/p>\n

The rise of Marine Le Pen<\/strong><\/p>\n

Marine Le Pen (49) is the youngest daughter of the veteran FN leader Jean-Marie Le Pen, a French far-right politician who supported euro-skepticism, opposed immigration and pushed for law and order, traditional culture and values. As long as he led the FN, it was a marginal far-right, anti-Semitic party with politically incorrect neo-Nazi associations. In the past decade, Marine Le Pen has successfully \u201cmainstreamed\u201d FN away from the margins and extremism. Nevertheless, since major French banks oppose her political platform, she has had difficulties funding her campaign.<\/p>\n

In her campaign, Le Pen has supported traditional values, law and order, while opposing immigration and the EU. As her campaign kicked off, she reaffirmed the FN\u2019s anti-immigration, protectionist and anti-EU stance. \u201cThe divide is not between the left and right anymore, but between patriots and globalists,\u201d she said. \u201cFinancial globalization and Islamist globalization are supporting each other. Those two ideologies want to bring France to its knees.\u201d<\/p>\n

Le Pen wants to pull out of the Euro and a return to French franc, a referendum on EU membership within 6 months, and taxes on imports and the employment of foreigners in France. Building on Gaullist legacies, she is a critic of and wants to pull France out of the NATO. She would like to revise French relations with the U.S. and has denounced French bandwagoning toward Washington. Her France would be more independent in the international arena. She would rely on neo-gaullist geopolitics in the new multipolar world.<\/p>\n

In the coming weeks, Macron will portray her as a threat to France, and chaos to the European Union, with support by center-right and conservative media in France and US-based international business media. Indirectly, this portrayal will be fostered by Hamon and Melenchon who will paint her in far darker colors since socialists and far-left share blue-collar worker constituencies with the Front National.<\/p>\n

Fillon\u2019s fall, socialists\u2019 margins<\/strong><\/p>\n

Born into privilege, Fran\u00e7ois Fillon (63) became nationally known as President Sarkozy\u2019s Prime Minister. He represents conservative Republicans (Sarkozy\u2019s former Union for a Popular Movement, UPM). Years ago \u2013 a long time before Macron\u2019s failed attempts \u2013 Fillon undertook controversial reforms of the labor code and the retirement system.<\/p>\n

Unlike the \u201cEurophile\u201d Macron, Fillon is the ultimate \u201cAnglophile,\u201d a French Thatcherite who would like to balance the budget and abolish the wealth tax. He would raise retirement age to 65 and reduce the public sector by cutting half a million civil-service jobs. He is the man the socialists love to hate and that is too sincere for Macron\u2019s financiers. They need somebody who shares Fillon\u2019s economic policy tenets but could implement them without public opposition and street fights.<\/p>\n

In foreign affairs, Fillon is tough about immigration, Islamic radicalism and terrorism. But like Thatcher, he is also a great believer in realpolitik and has called for dialogue with al-Assad’s Syria and Putin. While Fillon stands for the West, he sees the expansion of NATO to Russia\u2019s borders in the 1990s as a provocation that was bound to alienate Moscow and foster redundant friction. These stances have made him unpopular in neoconservative Washington.<\/p>\n

Last fall, Fillon still appealed to the conservative \u201csilent majority\u201d but that was before a widening investigation following charges that he had paid his wife and children almost 1 million euros from the public payroll for no work. While he attributed blame to a \u201cpolitical assassination,\u201d magistrates recently him under formal investigation for embezzling state funds. As a result, his polls are fizzling.<\/p>\n

Until recently, the third viable candidate was Beno\u00eet Hamon (49), a French socialist (PS) who defeated the centrist and business-friendly Manuel Valls in the party primaries. While Harmon is portrayed as a new figure, a sort of \u201cYoutube Guevara,\u201d he is actually a veteran party bureaucrat and has served in the European Parliament (2004-9), and as Hollande\u2019s Junior Minister for the Social Economy (2012-4) and Minister of National Education (2014). He supports a basic income to all French citizens, a 35-hour workweek, legalization of cannabis and euthanasia, and huge investments in renewable energy.<\/p>\n

Hamon is critical of neoliberal economic policies and the NATO. He represents the left wing of the PS and is an admirer of US Democrat Bernie Sanders. That\u2019s not enough for the French old left, which sees him as too malleable. The far-left Jean-Luc M\u00e9lenchon, who heads the new \u201cUnsubmissive France,\u201d would like France to leave both the euro and NATO. As Hamon\u2019s ratings have slightly eroded, those of M\u00e9lenchon have slightly increased.<\/p>\n

Together, the two could battle either Macron or Le Pen, or both. But that would require a unified left and viable appeal in center-right.<\/p>\n

Economic erosion<\/strong><\/p>\n

The nerve-racking French election is the direct result of half a decade of policy failures, which climaxed last summer in a failed effort to reform the French labor code. It was not the first time. Years ago, huge strikes forced President Chirac to back down from proposed changes in the pension system. Similar strikes led to fierce union opposition when President Sarkozy raised the retirement age. But under Hollande, a socialist government was pitted against unions and the far-left, which fostered apprehension, disappointment and fragmentation in the left.<\/p>\n

When Hollande replaced the conservative Sarkozy as the French president in May 2012, his popularity hovered at around 58 percent. By late 2016, Hollande\u2019s ratings had plunged to less than 5 percent. While France cannot avoid the overhaul of its labor legislation in the future, a socialist president cannot drive a neoliberal labor agenda. That\u2019s the lesson of Hollande\u2019s fall.<\/p>\n

After half a decade of near-stagnation, French economy has been benefiting from a cyclical rebound, thanks to a more accommodative external environment, especially lower oil prices, a depreciated euro, record low interest rates and the European Central Bank\u2019s quantitative easing. However, these shifts cannot compensate for France\u2019s longstanding internal rigidities, which overshadow the economy\u2019s medium-term potential<\/p>\n

n the 1980s and 90s, French growth still exceeded 2.2 percent; in the 2000s, it hovered around 1.8 percent; now it is around 1.1 percent and likely to decelerate to less than 1 percent by early 2020s. In the past decade, French competitiveness, as reflected by the country\u2019s share in world export markets, has declined significantly as well. What\u2019s worse, French real wage growth has been solid, despite declining productivity growth. The equation is unsustainable. The implication is that French economy is penalizing future generations for its current distortions.<\/p>\n

If the external environment grows still more adverse, while reform progress is hardly evident, French banks, given their size and interconnectedness, could generate adverse effects not just domestically but through spillovers, especially in Italy and emerging Europe.<\/p>\n

France remains the world\u2019s sixth largest economy. If it begins to shake, Italy cannot avoid a quake and ailing Eastern European economies could take multiple hits. That, in turn, would have adverse implications across the Eurozone and globally.<\/p>\n

About the Author\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0<\/strong><\/em><\/p>\n

Dr.\u00a0Dan Steinbock\u00a0is an internationally recognized expert of the nascent multipolar world. In 2010, he predicted that \"\"<\/a>Brussels opted for misguided policies to overcome the European sovereign debt crisis, which would prolong rather than resolve the challenges. In spring 2016, he forecast the UK Brexit and the outcome of the Italian referendum.<\/p>\n

Dr Steinbock is the founder of DifferenceGroup. He has served as Research Director of International Business at India China and America Institute (USA) and Visiting<\/p>\n

Fellow at Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more, see www.differencegroup.net\u00a0<\/a><\/p>\n

The original commentary was published by The World Financial Review on March 21, 2017<\/p>\n

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