And now comes the hard part.
Centrist newcomer Emmanuel Macron trounced far-right candidate Marine Le Pen in Sunday’s vote for president of France. Macron won 66.1% of the vote in the two-person run off.
The political and business leaders of France and the European Union certainly breathed a sigh of relief. Le Pen had threatened to pull France out of the euro.
But the euro and European financial markets are generally lower today. The euro is down 0.58% as of 1 p.m. New York time against the U.S. dollar. The French CAC 40 stock index is 0.91% lower. The German DAX index is down 0.18%.
Some of that decline is simply because the financial markets, while nervous, had largely already priced in a Macron victory. Part of the decline is also a sell on the news reaction.
But part is a realization that defeating Le Pen was actually the easy part of the job facing Macron. His En Marche! movement isn’t a political party and it holds not a single seat in the French legislature. France goes to the polls again in June to elect members of parliament and Macron faces the over-whelming task of putting together slates of candidates to contest those seats. It will be extremely hard for Macron to govern without at least some supporters in the legislature. He will not be able to move his program of economic reform and growth using just votes from allied parties of the center and right.
Macron’s 66% of the vote was enough to crush Le Pen but her 35% tally is still almost twice the 18% of the vote her National Front won in 2002 under her father Jean-Marie Le Pen. And almost 26% of the French electorate chose to abstain in this vote. Macron did not win a mandate for his program to revive growth in the French economy by loosening lab or rules, increasing productivity, and deepening ties with the European Union.The former investment banker is viewed with suspicion by the considerable part of the French electorate that feels victimized by globalization.
And Macron is inheriting an economy with huge problems from outgoing President Francois Hollande, the most unpopular president in recent French history. Growth has picked up slightly in the French economy recently but it was still only 1.1% in 2016.That’s the fastest rate in Hollande’s five-year term, but still well below the EuroZone average of 1.8%. The job market has shown only modest improvements in the last year and in 2016 86.4% of new hiring was in the temporary sector of the French two-tier job market. Long-term unemployment hit a record with 43% of the unemployed out of a job for more than a year. (Records in this area go back only to 2003.)
France’s problems are also big problems for the European Union since weakness in the French economy leaves a huge hole in the bloc’s economy. With France and Italy both struggling, too much depends on the export-driven economy of Germany–with predictable results for monetary policy at the European Central Bank.
Wall Street currency traders aren’t expecting the euro to climb much higher on the French news. The current consensus is to sell the euro on rallies to $1.10.