Market analysis: French vote boosts Macron reforms

The victory of Emmanuel Macron’s party, created just more than a year ago, is impressive despite the low turnout, which was possibly a consequence of a long and harsh presidential election campaign.

French parliament members from the La République En Marche pose with their newly elected group president Richard Ferrand, front row centre, for a group picture. Gilles Bassignac / AFP

BORDEAUX, FRANCE // La République En Marche – Republic on the Move (LREM) – the party of French president Emmanuel Macron and its ally Democratic Movement (MoDem), has swept to power in France’s elections after winning 49.1 per cent of the votes cast.

This vote gives LREM a very comfortable majority in the National Assembly – the lower house of parliament – with 350 seats out of 577. With 302 seats LREM will not even require the support of the MoDem, being above the 289 seats required to have an absolute majority.

The victory of Mr Macron’s party, created just more than a year ago, is impressive despite the low turnout, which was possibly a consequence of a long and harsh presidential election campaign.

These legislative elections have also generated a lot of firsts. A record number of 223 women were elected, taking more than a third of the seats and bringing female parliamentary representation to the sixth place in Europe. Another point is the very high number of MPs – about three quarters – who were elected to the national assembly for the first time.

As expected, the conservative party Les Républicains and their allies will be the main opposition group in the national assembly with 137 seats.

Jean-Luc Mélenchon’s new hard-left movement and the far-right Front National were not able to confirm their strong results in the presidential election and secured a limited number of seats – 27 and 8, respectively.

But the biggest loser was the Socialist party, which lost more than 250 seats and now has just 44 MPs. The party has been associated with years of high unemployment and low national confidence. This overwhelming defeat triggered the resignation of its leader, Jean-Christophe Cambadélis.

Following this decisive victory, LREM’s strong majority in the national assembly will allow the new president to implement the business-friendly strategy that was central to his election campaign. Mr Macron has promised to cut corporate tax rates gradually from the current level of 33 per cent to 25 per cent. He has also pledged to cut public spending by US$67 billion (Dh246bn) over his five-year term, partly by making the government more efficient. He said he would cut up to 120,000 state employee posts by not filling positions as workers retire and by reducing cash allocations to local authorities. He wants to cut the long-standing deficit in the budget to below 3 per cent of GDP.

But the priority in the short term is the reform of France’s labour laws and overhauling pensions and unemployment benefits. The new government will probably pass a first set of labour laws in the summer. The long-awaited reform of the complicated labour code is a priority for the president. Unemployment stands at 9.6 per cent in France, about double that of Germany and the United Kingdom.

Mr Macron knows that any achievement on that front will be considered a political success in contrast to the former president François Hollande’s promise – widely-publicised but not kept – to reduce unemployment.

More importantly, the start of a new trend may act as a catalyst to create a virtuous circle by improving economic growth, reducing public deficits and rebuilding national confidence.

In this environment French financial markets have benefited not only from the relief of the election of a non-populist president, but also from a true vote of confidence.

The CAC40 index, the French equity benchmark, is up 4.4 per cent since Mr Macron’s election, outperforming by far the European index, the EuroStoxx 50. On the fixed income front, the French OAT-German Bund 10-year spread, a good gauge of the level of trust in French debt, is standing now at 35 basis points (0.35 per cent), its lowest since the beginning of the year.

The presidential election has been one of the most tumultuous in France’s recent history, but since the 2008 banking crisis French presidents have promised to transform the country and failed.

By providing a parliamentary majority to the newly elected president, voters have given him carte blanche to revive the country.

Sebastien Henin is the managing director and head of wealth management at Alienor Capital.

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