Itaú BBA - France to remain in the Eurozone even if Le Pen wins

Macro Vision

< Volver

France to remain in the Eurozone even if Le Pen wins

abril 19, 2017

Political gridlock to block attempts at na EU exit referendum

The upcoming French elections are unlikely to result in a victory for far-right candidate Marine Le Pen, though she is expected to make it to the run-off vote.

Even if she manages to win the elections, a referendum on EU membership is highly unlikely. 

Most of Le Pen’s aggressive measures are likely to be stopped by Parliament.

With the French elections just around the corner, there has been a recent increase in the discussion of possible outcomes and upcoming scenarios for the Eurozone’s second-largest economy. With five major candidates and most of the top performers coming from non-traditional parties, there is a marked degree of uncertainty about the election results. In this article, we shed some light on the main issues that are driving these elections; we also argue that even if far-right Marine Le Pen were to win the ballot, she would become a mostly powerless president (see our Macro Vision “Has Europopulism been stopped?” for a discussion about Europopulism and how overall support for these parties might decline ahead). 

A Le Pen victory is first and foremost a tail-risk scenario

The Europopulist National Front candidate Marine Le Pen will most likely make it to the run-off ballot against independent Emmanuel Macron, but polls suggest that this is as far as she will be able to go. Examining the opinion polls for the first round of the elections (see chart), we note that Le Pen has never surpassed the 24%-27% polling threshold. By contrast, independent candidate Emmanuel Macron has managed to rise from 16% in polls in early December 2016 to 23% as of April 2017. This was due in part to Republican François Fillon’s fall from grace following nepotism allegations as well as to an alliance with centrist François Bayrou in late February. On March 20, the live campaign debates kicked off, and as we expected, other candidates gained support while Le Pen did not move. Her share of the voting population can be explained by her familiar face in the French political world, which has allowed Le Pen to build a loyal base of supporters over the years.

Rejection of the French far right dates back to the 1970s (if not the 1940s). The nationalist Marine Le Pen has been driving the anti-establishment movement by emphasizing that Brexit, Trump and the Italian referendum last year were signs that the people require someone who can lead them forward and out of the old way of doing politics into a new type of government. Still, her party is not really new: the National Front has been around defending far-right populist measures since its inception in 1972, and it has opposed the EU since its creation. Ms. Le Pen herself has been a member of the party since 1986, and she took over the party leadership in 2011 from the founder of the NF, her father Jean-Marie Le Pen. The latter was defeated by Republican Jacques Chirac in the run-off of the 2002 presidential elections, 82%-18%.

We see odds of a Le Pen victory diminishing as independent candidate Emmanuel Macron has become the favorite to win the elections. Examining the run-off polls, we can observe that Macron, Fillon and Mélenchon have very strong chances against Le Pen (see chart below). Even if Hamon’s voters were to fully switch from him to Mélenchon, Fillon’s voters would shift to Macron in order to block the adverse Mélenchon-Le Pen run off. It is fair to conclude that the French two-round electoral system was designed specifically to block extreme candidates, and this system has not yet failed.

Nonetheless, it is worth asking what happens if the polls are wrong and Le Pen becomes president.

What if Le Pen wins? 

Even if Le Pen becomes president, she will lack Parliament’s support. Parliamentary elections, due on June 11 and 18, are also designed in a two-round system and are likely to block a significant showing of the National Front. The members of the National Assembly are elected from numerous constituencies using a two-round system. If a single candidate obtains over 50% of the vote, as well as a minimum of 25% of all registered voters, they win. If no candidate meets these criteria, a second round is held in which the two candidates from the first round with the most votes, plus any other candidate who obtained above 12.5% of the vote. To see how this system has been successful in the past, we can look at the 2012 legislative elections, where the NF had 13.6% of the vote in the first round but only 3.7% in the run-off, ending with a mere two out of 577 seats. Additionally, they have only two senators out of 348.

The lack of Parliament’s support is enough to bar Le Pen’s most radical proposals, including a referendum on the euro.Unlike Britain, France has a written constitution that states clearly that “The Republic is part of the European Union.” Therefore, in order to leave the Eurozone, Le Pen has to change the constitution. She can do that either through congress or by calling a referendum on the matter. Below we underline the legal process for undertaking these options:

A.    Changing the Constitution via Congress (Article 89 of the French Constitution):

Congress can send a proposal for a constitutional revision to the President after approving it by simple majority (50% + 1) in each House of Parliament. After receiving the proposal, the President can then decide to send it back to Parliament, where it needs to be approved again, but this time by a three-fifths majority in each house.

B.    Changing the Constitution via Referendum (Articles 11 and 89 of the French Constitution):

•  Same process as above, but instead of sending the proposal back to Parliament, the President can call a referendum with binding results.

The Prime Minister proposes a referendum on the subject, and the President agrees to it. Note that while the President can appoint the Prime Minister, the PM has to pass a confidence vote from the National Assembly and must also belong to the largest party.

Finally, either Congress or the President needs to approve a referendum request made by 20% of the Congress together with electronic signatures of 10% of voters (about 4.7 million people).

• Note that in this case the President can take the proposal to a referendum if Congress does not reject (50% majority in both houses) or vote on the proposal within six months.

Even if Le Pen manages to put forth a referendum, French voters are still highly supportive of the euro and should reject it. As we have shown above, there are severe legal constraints that make it highly unlikely for Le Pen to be able to exit the Eurozone. But let us suppose for a moment that she were able to call a referendum on euro membership. In that case, we find that 68% of French people still have a high degree of support for the currency (see chart below).

In the end, a Le Pen government is likely to lead to political gridlock rather than France’s exit from the European Union.


Vitor Fonseca Ferreira

< Volver