Forex Trading Library

French Elections Dragging on the Euro

0 319

French Elections Dragging on the Euro
We’re heading into a weekend that could be a bit fraught for the Euro, as French voters head to the polls. The shared currency has been underperforming since earlier this month when French President Emmanuel Macron announced snap elections in the wake of his party’s disappointing results in the EU Parliament elections. French stocks tanked, but recovered somewhat since then. The Euro, not so much.

Traders are not just worried about the implications for the second largest economy in the EuroZone, as the election results could be a barometer for other parts of Europe. There are multiple factors that provide uncertainty about the elections, and the market is taking a step back until that uncertainty is resolved.

The French Protest

One of the things to keep in mind is that European voters typically attach less importance to the EU-level elections than national polling. That is easily seen in the relatively low participation rates for the EU Parliamentary elections compared to national parliaments. Consequently, EU votes tend to be an opportunity for voters to register their dissatisfaction about their current governments, in a manner of a protest vote. This allows more “fringe” or “unaligned” candidates and parties to get more support.

But even if that’s the case, and French voters return to supporting Macron’s party, investors are still concerned. That’s because both the left and the right in France have been making all kinds of promises in order to court voters as they both face the real possibility of losing. Some of those proposals, such as raising wages, lowering the age for retirement, and cutting fuel taxes, could come at a cost for the French Treasury. Which is already dangerously high in debt, and would hurt the country’s leadership – and that of the EU – in efforts to reign in other countries that are more profligate in their spending. That could shake some of the confidence in the Euro, which has been slowly trying to recover its reputation since the 2011 crisis.

Potential Fallout

Polling suggests that French voters were not just voting in protest earlier this month: The far-right National Rally party is leading in polls so far. But, it doesn’t have enough to win outright. Macron’s centrist party has fallen to third place in voter intentions. With both the left and center adamant about not working with the National Rally, that would leave an uneasy coalition of minority parties.

One of the options being considered is to form something of a “government of experts” or technocrats, echoing the political impact of the rise of the Lega Nord in Italy that left former ECB President Mario Draghi as Prime Minister of Italy for a time. France moving towards the political make-up of the South, as opposed to the coalition forming of the North, could signal a shift in fiscal priorities that would undermine confidence in the Euro. France’s alignment with the fiscal responsibility of Germany has helped solidify the Euro of late.

France’s electoral system implies a first round of voting on Saturday, and then a final run-off on July 7. That means that regardless of what happens, there is still another week of electoral uncertainty that could weigh on the Euro. Unless there is a clear result suggesting that the swing to the right in the EU parliamentary elections was just venting frustration with the Elisee Palace – and Macron actually does something to address the growing discontent.

Trading the news requires access to extensive market research – and that’s what we do best.

Leave A Reply

Your email address will not be published.