PineBridge Investments’ chief economist Markus Schomer has assessed the political risks carried by the forthcoming elections in the Netherlands, France, Germany and possibly Italy.
He said only one of these elections needs to turn wrong to sharply increase the risk of a severe EU crisis.
Schomer focused on France where Front National’s Marine Le Pen scores high in the polls.
The far-right candidate is campaigning against immigration, against the EU membership and against the straight jacket of the euro (Le Pen recently said that both European and local currencies can co-exist, quoting the model of the European Currency Unit).
“A Le Pen win could seriously fracture the relationship between Germany and France – the driving force behind the project of European Integration – to the point of breaking up the eurozone or the EU itself,” commented Schomer.
PineBridge Investments’ chief economist added the victory of Francois Fillon in the center-right primairies was a very positive development.
If elected as the next French president, Fillon would consider more business friendly economic policies in France, having referred to former UK Prime Minister Margaret Thatcher as a model during the campaign for the center-right primairies.
“For the first time it indicated there is not just negative political risk in Europe this year, but also a small chance politics could actually turn out to be positive for European growth and stability.
“It would require a Fillon win in May and a workable Republican majority in Parliament where they currently hold less than 40% of the seats. However, it seems Fillon needs the center-left to remain divided,” Schomer said.
If Fillon currently leads the polls, the gaps between candidates remain very tight.
“Fillon is in the lead with 29% with Le Pen just 4 points behind (not far from the typical margin of error). The left, meanwhile, seems split between the Socialists around Jean-Luc Mélenchon at 14% and ex-Socialist Emmanuel Macron, who now styles himself as a centrist/third way candidate, at 18%.
“If those two camps could form a coalition and field a single candidate – assuming the polling wouldn’t change – such a center-left option could be in the lead with 32%,” Schomer analysed.
According to PineBridge Investments’ chief economist, the worst case French election scenario would see Le Pen facing a left or center-left candidate in the second round.
“In such a scenario most of the losing center-right votes from the first round could go to her in a vote against the current deeply unfavorable left wing government, while tolerating Len Pen’s intolerant, anti-EU and protectionist views.
“That wouldn’t be that much different to the Republican embrace of Donald Trump in the US. If she runs against a center-right candidate, she likely loses, because most of the center-left votes would go to the center-right candidate as the least worst option,” Schomer argued.
However, the probability of that scenario occurring remains low, he reckoned as current polls suggest Le Pen would not only lose against Fillon in a 1-on-1 poll but also against some center-left candidates such as Macron.