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Nationalists Slipping in European Polls

By David Llewellyn-Smith, founding publisher and former editor-in-chief of The Diplomat magazine, now the Asia Pacific’s leading geo-politics website. Originally published at MacroBusiness

Don’t look now but European election polling is turning bullish for growth. First up, the Netherlands poll in six days is seeing a crash in support for Geert Wilders’ racism party (in grey):

Mr Wilders could never win anyway given he could not form a coalition but with his vote down to 20% from a high of 34%, he might deliver a surprise drubbing of himself to markets.

Next, the French election is holding Le Pen at bay. In the first round of voting she is losing her big lead:

In the second round she is still miles to the rear:

Never say never but I can’t see her getting up from here barring something like a terrorist attack. Algrbris reckons it’s no problemo:

Even if Ms Le Pen wins, redenomination risk is low. In the FN’s Les 144 engagements présidentiels, Le Pen details her ambitions to target 2% GDP growth by 2018 partly through tax cuts to SMEs and individuals in lower-income brackets. More importantly, she also plans to renegotiate EU membership and to break the single-market with a tax on imports.

We see a very low probability (14%) of Le Pen progressing on her Euro-exit agenda, even in the unlikely event of her winning both rounds of elections. For Le Pen to deliver on Frexit, she will need approval from France’s bi-cameral parliament. France’s parliament is split between the Assemblée Nationale and the Sénat. In theory, both houses need to pass legislation for it to become law, but in practice the final decision rests with the Assemblée Nationale. However, Le Pen’s FN party currently only has 2 of the 577 deputies in the Assemblée Nationale. The next elections for the Assemblée Nationale will take place on the 11th and 18th this June, but the latest poll suggests that FN is only likely to get 58-64 seats, still far short of a majority. Additionally, FN has no deputies in the Sénat. Only a third of Sénat deputies are up for re-election every three years. This means the earliest the FN could control the Sénat is after three years, in 2020.

Markets currently overestimate the risk of currency redenomination. If we assume that French debt in local currency would be worth around 20 cents below its German equivalent, then market prices imply a 5% probability of redenomination: the 1% yield differential in 2-year French vs German bonds is roughly equal to 5% probability times a 20% loss given Frexit. Instead, we estimate a 1% probability of redenomination on French sovereign debt (8% probability of Le Pen winning elections, times a 14% probability of a referendum winning).

So, France would swing a little Right with Macron. He’s your classic eurocentric progressive fiscal conservative. Everything everyone loves to hate right now. Go figure.

Finally, Germany may be building to a shock but not a bad one, via the FT:

Steffen, a salesman, volunteer firefighter and village councillor, has long been one of Angela Merkel’s most enthusiastic supporters. But the card-carrying member of the German chancellor’s Christian Democrat party says he will vote for her with a heavy heart in September’s general election. “She is not so adored any more,” says the 42-year-old at a party rally last week in the Mecklenburg Vorpommern town of Demmin, close to Ms Merkel’s constituency. “There are many problems: problems the chancellor helped create. She wants to maintain the rule of law but she did not keep it herself in controlling borders [during Europe’s 2015 refugee crisis].” Seeking an unprecedented fourth term in office, Ms Merkel is facing her most difficult poll battle yet — and she is part of the problem. After 12 years, burdened by some of the contentious decisions of a tumultuous period in power, one of her biggest jobs is to show she still has fire in her belly — and give her supporters the same feeling. Martin Schulz, her biggest rival, has done just that. The energetic former European Parliament president has galvanised the Social Democrats and turned himself into a credible rival since he took the helm of the party from the unpopular Sigmar Gabriel in January.

Polls bear it out, black is Merkel, red is Shultz

Shutlz would bring eurobonds and good times back to Europe. Indeed, if Macron won France would be further Right than Germany.

Capital is still pricing for risk, also via the FT:

Japanese investors sold French government bonds for the third consecutive month at the start of the year, reflecting souring sentiment towards the country’s debt ahead of its presidential election next month. The latest figures from the Ministry of Finance show Japanese money market managers sold ¥34.9bn ($0.3bn) of French debt in January. That is a significant slowdown from the ¥232bn dumped at the start of the year, but marks the first three-month selling streak since 2011.

As you would.

The longer term risk till remains Italy where Five Star (yellow) continues to make headway:

In sum, there’s enough risk still here to make capital cautious. But there is also a clear shift towards eurocentrism in the core countries.

The three most important implications for asset allocation is the US dollar, gold and European stocks. The euro will get a good lift as these polls are born out and gold will sink (despite less upwards pressure on the USD). If Europe gets it together it might be time to think about switching out of gold and into something like inflation-linked bonds for portfolio protection, as well as adding a European stock long.

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28 comments

    1. Colonel Smithers

      The daily diatribe against Trump and Putin, especially in the UK MSM, is designed to make voters wary of any change from neo-liberalism.

  1. Jeff

    One can draw an analogy between the French and US elections, where Macron plays Clinton and Le Pen plays Trump. Everybody, left, right and center is for Macron, even the MSM and business mogols are in favor of Macron, it is an election he cannot loose, while Le Pen is daughter of her father, and sooo unfit for the Presidency.
    There is no opioid epidemic, there was no housing disaster, healthcare is still top notch … so the French are still way better off than their US brethren, but things are going downhill for the 99,9% and nobody is listening to the people.

  2. Polo

    In addition to Jeff post above I would like to add that the electoral campaign has not really begun.
    When it will become clear that Macron has been endorsed by most of the socialist party historical figures, and in particular most of present government members, the perspective of 5 more years of Hollande gvt (even without Holland) may reveal less attractive to a lot of people.
    Also, saving the ass of socialists reps in the following general elections (when it becomes clear that Macron grants them nominations) may not be satisfactory (lol) option for voters. And you can be assure that all his competitors (except Hamon, the nice guy who wins the socialist primary just to be fucked by his party pals) will play the hate cards against socialists (only by name, it’s copyrighted). Just check all intermediate elections results this recent years to understand how these guys are appreciated.

    Things may drastically change in the next few weeks.

    PS: And just to say, I don’t think either that Le Pen will win or even she wants to win. That’s not her business plan.

  3. Anonymous2

    In favour of the argument that France will be where ‘populism ‘ fails is that it is a much more egalitarian society than the US or UK. If Brexit and Trump were protests against inequality then arguably that will have less force in France.

  4. vlade

    I believe that the Obama-like hope (as PK mentioned some time before in the comments) is the driving French elections now. Basically, both M and LP present themselves as outside of the current elites, change candidates. M is less scary to people, and more charismatic.

    The big question will be what outcome it will have in reality – because if M fails to deliver (which is likely, as I can’t see how he would work efficiently with French legislators across all the various lines unless he’s a political genius – which he might be, but we’ll have to s), then chances of FN winning next time (with LP or someone else) would go up considerably.

    Of coure, anothe possibilty is is that M will be able to use Brexit to distract from any domestics issues (where he can’t do much), and ride on that.

    1. salvo

      yes, but Macron is massively pushed by the ‘liberal’ media, le monde & co, on the one side as the moderate anti-establishment candidate, on the other hand as the republican bulwark against right-wing extremism, and so far it seems to succeed in pushing this narrative because a big part of French society is willing to accept it. But Macron is part of the political establishment. French society is willing to accept that false narrative because it recognizes in Macron the person able to establish France as the leading nation in Europe alongside Germany

  5. PlutoniumKun

    Its infuriating to look at those French polls to see the left would have a real chance of winning if only they could agree on a joint platform and one candidate. Its ridiculous to let their egos (its hard to see it as anything else) and obscure ideological disagreements mean that left voters will be reduced to a choice of having to vote for Macron or Le Pen.

    1. salvo

      I don’t think it is a personal fault of the leadership, as far as Melanchon and la France Insoumise is concerned it is absolutely reasonable that they don’t trust the PS anymore, even under Hamon. As long as French society is not willing to renounce its imperial colonial past it will get stuck with Le Pen, Macron, Sarkozy and co

      1. PlutoniumKun

        Can you elaborate on that? I confess to knowing little to nothing about the background to the various splits in the French left.

    2. fajensen

      It is not egos, it is a strategy. They do not want to win, they want to participate but then blame the outcomes on everyone else.

      “The Left” of today is as neoliberal as every other “responsible” “main-stream” politician (and on women’s issues the left of today are actually a lot closer to Sayyid Qutb than anyone else are), but, as long as the left can cleverly re-arrange themselves into losing positions, they will never get called out on any of it.

      “Failure” means that “the left” are excused from responsibility, while in “opposition” they triple-down on virtue-signaling, while peddling influence to sponsors, grow a fat guaranteed-income pension and foam the runway for a political career for least one of their useless children. So, because “the left” are never fully elected, we never really get solid enough reasons to get rid of them, basically.

      PS:
      The Pattern of Inevitability(tm) looks somewhat familiar – maybe some consluttants and wonks came over all the way from the smoking wreck of the Hillary campaign to try their mettle here?

      Do we see some Positive Psychology California Style: If only one wish it to be hard enough it will become reality?

      1. Eustache de Saint Pierre

        Melenchon represents the Left, Macron the faux version – it is I think similar to Sanders / Clinton & Corbyn / Blair.

  6. Moneta

    Sounds like Brexit and Trump election…. polls and media convinced there is not much threat for the establishment.

    1. Yves Smith Post author

      No, the gap in the runoff is vastly larger than for Trump v. Clinton. Most of the time, Clinton was 4 points ahead of Trump, with a range of being barely ahead to very briefly down 11 (after the Khan gaffe) with the normal range down 2 points to down 7. 4-5 points is the margin of errors on polls and so Trump being down 2 points in the final tally is entirely consistent with the polls.

      And that’s before you get to the fact that the state level polling, which matters in the US, was less precise. Lambert pointed out in his piece yesterday on the election that he had been keeping tabs on the Electoral College paths to victory per each candidate, and he said several times Trump had more ways to eke out a win than the media was giving him credit for.

      A 30 point gap is a totally different matter. Yes, 2 months is a way away, but a LOT would have to change in two months.

      1. visitor

        What you say is accurate, but there is a big issue that may throw political calculations out of the window: massive abstention.

        The latest polls in France show that abstention will reach at least a third of the electorate — double the historical value — and that it may well grow further.

        Besides, when evaluating voting intentions, it appears that 78% of Le Pen voters are already committed to their vote, and 70% of those intending to vote for Fillon, whereas only 50% of Macron voters are. Macron’s base is fragile.

        In France just like in the UK, the USA or the Netherlands, polls have been repeatedly wrong in the past. Expecting that the typical left-wing voter will, just like in 2002, rally under a right-wing (Fillon) or an opportunist (Macron) candidate to stop Le Pen is a risky bet. Their experience with the outcome of “tactical voting” has been dismal, and they might really wash their hands of the whole affair in the second round.

        1. visitor

          All right, some figures from the latest poll published in Le Monde: candidate/first round votes/committed voters

          Le Pen 27% – 76%
          Macron 23% – 42%
          Fillon 19.5% – 62%
          Hamon 13.5% – 41%
          Mélanchon 12% – 56%

          Clearly, voters remain lukewarm about the candidates formerly affiliated with the current Socialist Party government — Macron and Hamon.

  7. David

    This kind of superficially impressive analysis is what you get when you work with an outdated analytical model of “Left and “Right” or “nationalist” and “European”; That’s not where the game is, and so much of the analysis is beside the point. It also confuses electability with ability to govern.
    The real political divide can be expressed in various ways: “insiders vs; outsiders”, “soveriegnists vs. Euro-integrationists” or even the centre vs. the periphery. When we look at the figures in these ways, they begin to make sense.
    Take the French case for example. There, the last reliable polls show that the two Presidential candidates for the “traditional”, “insider” parties, one of which currently forms the government, the other of which previously did so, can barely muster a third of the French electorate between them. This may even have reduced over the last few days as Fillon continues to weaken, and people keep forgetting who Hamon is. This is astonishing.
    By contrast, “soverignist” candidates, who want major changes in Europe and more independence from Brussels can muster about 40%. A lot of this is Le Pen, but Mélenchon (allegedly on the far Left) and Dupont Aignan (allegedly the traditionalist Right) are expressing fundamentally the same ideas. The “integrationist” candidates (Fillon, Hamon and Macron) have a majority, but that’s largely because the elites of those parties are absolutely wedded to Euro-integrationist ideology. Their voters don’t necessarily feel the same. And finally, if you take the candidates from “outside” the system (Le Pen, Mélenchon and Macron for the most part) a clear majority of the French electorate (about 65%) supports one or the other. (OK, Macron is pretending but his whole campaign is based on an allegedly new start and a repudiation of the existing system).
    So traditional categories of “Left” and “Right” mean little, and so-called “nationalists” can be found everywhere. That’s what you get for using outdated analytical tools.
    Finally, as I have said before, it will be difficult, and probably impossible, for Le Pen to form an FN government. But it will be even more difficult for Macron, because he scarcely has a party, and needs to find 577 candidates and win enough seats to be the dominant party in the National Assembly, to form a coalition; I think that’s very unlikely, and the country will probably be ungovernable after the summer.

    1. Anonymous2

      David

      Thank you. That is very interesting. Do you forsee an Assembly with four or more parties sharing the seats? I can see the traditional parties holding on to many seats but guess that, if neither of those parties can get their candidate into the second round,
      traditional loyalties will be weakened with somewhat unpredictable consequences?

      1. David

        Well, there are currently five separate “Groups” in the Assembly, as well as about 25 independents. The governing coalition itself consists of three parties. By and large, the many parties involved have had understandings with each other, so the situation is not quite as anarchic as it may appear, but that could change.
        The one thing to bear in mind is that, with its weird two-round electoral process, the French system (like the British one) seldom hands out seats in parliament proportional to votes. Even then, local deals may be done in the second round – in 2012 candidates of the major parties conspired to keep the National Front out. So almost any outcome is possible. Don’t forget though that the major parties are very well dug in to many of their traditional seats, and have powerful machines and large patronage systems. I think it’s perfectly possible that the Socialists and the Republicans will do rather better in the parliamentary elections than they will in the presidential ones, thus making it impossible for either Macron or Le Pen to form a government. What fun.

    2. Ignim Brites

      Would FREXIT come under the purview of the President or the National Assembly government under the Fifth Republic? Or to put it another way, could the President pull the country out of the Euro without the agreement of the National Assembly?

  8. David

    Well, all the Constitution says is that the President “negotiates and ratifies treaties”, which could be held, by extension, to imply the opposite powers as well. But in practice these powers are always shared with the government, and in any event leaving the Euro would involve a massive amount of legislation which would have to be passed by the Assembly. Others may have a better feel.

  9. cm

    I thought this site had an anti ad hominem policy, yet the second sentence in this piece:

    Geert Wilders’ racism party

    is pretty blatant. Is the intent to cast aside Geert/LePen supporters & Merkel opponents as beneath serious consideration?

  10. Altandmain

    The big thing though is that if the neoliberals win this, it will not lead to economic prosperity. The anger that it fuels will lead to support for the far right.

    Only if a real Social Democrat or Socialist (not those fake ones in the EU that are basically a second neoliberal party) gain power and attempt serious Keynesian reform will that allow for some prosperity. That would mean taking on the Troika though and basically facing down all of Europe.

  11. Sally

    Hardly surprising when the media bias is in full meltdown about the EU and the elites are pulling out all the stops in defeating the increasing euro sceptism. If thy lose France the Euro is over.

    France and Germany have always been more pro EU than the UK. So it is not surprising it is taking longer to filter down. A lot of people have bought into this project. The idea of leaving is a growing movement. The elites may stop LePenn this year but the mould has been broken. Whats more if Le Penn does not win it’s guaranteed the incoming winner will make things much worse because they are commited to staying in the Euro, and will go on bringing in more immigrants. In 4 years time it will only be a worse outlook.

    The Greeks are still hanging on to their delusion but their country is being stolen from them by bankers and hedge fund managers. An older population worried about losing their pensions are not going to challenge this. The younger generation is leaving the country. At some point the Italian banking crises is going to blow up anthe Germans arnt going to pay for it.

    Only the UK and France have nuclear weapons so with the UK leaving the Europeans defence costs are about to rise hugely. Especially if Trump goes through with his warnings about countries paying more for their defence. By all accounts many German industrialists are by passing the EU sanction on Russia and so with every passing day the EU looks ever more idiotic.

  12. Kalen

    Very fair analysis of the polls. But after we heard that Hillary had 98.4% chances to win and she was endorsed by 99 out of100 to US newspapers and ALL MSM , the only lesson that we learned from polls is what kind of political expediency and goal seeking activity polling organization have involved themselves because definitely it was not search for truth but rather a submission to a political orders aimed blatantly on influence peddling and voter manipulation. What worse, hundreds of high paid political analysts saw nothing wrong with shockingly one side polls and predictions.

    What we learned or more correctly unbiased observer would learn even during primaries, that under the barrage of awful insinuations, hysterical, character assassination of a single candidate accused of worst crimes, racism, fascism etc., the very influence peddling MSM capacities caused people to conceal their true preferences so they would not be suspected or called deplorables or fascists when they were not.

    And lastly, all those high paid pundits did not get utter rejection of Hillary and hence missed the fact that she was running against herself while Trump was “Not Hillary” placeholder.

    Do they miss the same polling phenomena in Europe, a results of a monolith MSM propaganda tube supporting in unison corporate and establishment candidates while deriding the rest and threatening them with jail and hence making people to conceal their true intentions not be accused of being fascist or Russian spy? Do the same EU pundits feel safe in their delusions about Netherlands, France and Germany? I know not. But certainly there will be the test to what’s left of European democracies.

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