La France Profonde? SuperReturn meets in Berlin but the SuperPolitics may occur in Paris

Much of the private equity and venture capital industry is meeting this week at SuperReturn International in Berlin. That conference opened yesterday with an address, as last year, by Zanny Minton Beddoes, Editor-in-Chief at The Economist. For understandable reasons much of what she said concerned the Trump Administration and what might be discerned from his first speech to the US Congress delivered last night in Washington. On Europe, though, while conceding the changing dynamics of the September election contest in Germany, by far the largest challenge facing that continent, she noted, was the presidential election in France, as a victory for Marine Le Pen would almost certainly mean the death-knell for the Euro and conceivably the European Union itself.
This is the language of high drama but it is scarcely an exaggeration. The stakes in France this year are extraordinarily high. A Le Pen victory would be far more consequential than either the Brexit vote or the elevation of Donald Trump to the Oval Office. Britain has long been a discontented and semi-detached member of the European Union. It signed up to that project late and exclusively for economic reasons. For all the sound and fury of the next two years, once Article 50 is triggered, the brutal truth is that Britain can survive without the EU and vice versa. This is not an existential crisis.
Nor, in equal candour, is the Trump Presidency whatever its ultimate outcome. The US Constitution offers an intricate set of checks and balances with frequent opportunities for the electorate to alter its previous decisions. It hands the President sole authority over relatively little in domestic politics. If Mr Trump is to move his agenda through Congress then he will have to compromise with his fellow Republicans on Capitol Hill to achieve anything. If he manages to do that over the next six months or so, and the US economy is seen to have responded well, then his standing will strengthen but his personal command over policy will still be conditional on the support of others. And if Washington is instead destined to witness a car crash then the Democrats will retake the House of Representatives in November 2018 and the Trump era will be functionally over long before he can seek re-election.
A Le Pen triumph in France is of a different order of magnitude. France is not a semi-detached part of the European Union. It is a founder member and its alliance with Germany is what can allow an otherwise impossible 27-headed creature to have any sense of direction. It is absolutely central to it. If France had narrowly rejected rather than narrowly accepted the Maastricht Treaty when it held a referendum on it in 1992, then the single currency would never have happened. When it dismissed the idea of an EU Constitution in a referendum in 2005 the whole concept was killed off instantly.
Furthermore, the (amended) arrangements of the Fifth Republic are devised to award whoever sits in the Élysée Palace incredible personal authority over domestic politics. Until 2002, presidential terms in France lasted for seven years while parliamentary elections had to be held after five years. This created the possibility of a President facing a hostile majority in the National Assembly (and having to endure cohabitation as a consequence) with a huge reduction in personal power. Both François Mitterrand and Jacques Chirac had to endure this dire loss of status.
Since 2002, however, presidential and parliamentary terms have been aligned at five years. Once the presidential contest ends on 7 May there will be a short break before the parliamentary ballot occurs on 11 and 18 June. Not merely the working political assumption but the deliberate design is that the winning candidate for President would be able to maintain momentum from their own victory and so translate that in to a majority win for supporters of their own party and thus secure a monopoly of command. This is what happened for Jacques Chirac in 2002, Nicolas Sarkozy in 2007 and François Hollande in 2012.
What is the state of the presidential contest?
This has been, even by recent international standards, a very strange election. Six months ago, it was accepted that it would be a three way battle between incumbent President François Hollande, Alain Juppé, a former Prime Minister, for the centre-right Republicans, and Marine Le Pen of the National Front, with Mr Juppé the clear favourite. There were a few others in the field but none of them had serious traction.
The picture is now different and far more complicated. The Republican Primary not only failed to endorse Mr Juppé but did not embrace former President Sarkozy either with his ex-Prime Minister François Fillon the unlikely victor. On the Socialist side, Mr Hollande announced that he would not seek a second term and cleared the way for his more popular (or to be accurate, less unpopular) Prime Minister, Manuel Valls, to be the champion of the centre-left instead, except that the Socialist Primary did not select him but instead opted for Benoît Hamon, a younger version of Jeremy Corbyn. This in turn assisted the rise of Emmanuel Macron, a former Economy minister, who had bolted on the Socialists to create his own centrist En Marche! movement. He still seemed destined to come an honourable third until it was revealed, via the so-called Penelopegate, that Mr Fillon had used public funds to pay his wife and children for employment without much output. This triggered a substantial fall in his opinion poll standings which seems to have stabilized in recent days.
The net result is an extremely unpredictable contest. Ms Le Pen seems to have a very high chance not only of reaching the final two-contender round but of topping the first ballot with more than a quarter of the electorate supporting her. This is despite her own scandal involving the alleged use of European Parliament funds for party purposes. Mr Fillon and Mr Macron (the latter strengthened by the backing of a veteran alternative centrist François Bayrou) are evenly matched in the polls at about a fifth of the electorate each. The Socialist candidate is locked in a battle with Jean-Luc Mélenchon, who represents the even harder left, for fourth place with both struggling to achieve 12.5% of the vote. Unless matters change, this implies a meltdown for the Left in the parliamentary election.
What would be the consequence if whichever contender emerged victorious?
The least disruptive outcome would be a Fillon victory. This would almost certainly be followed by a sweeping triumph for the mainstream centre-right in the National Assembly too. A President Fillon would not be that different from the Chirac and Sarkozy eras. Mr Fillon’s candidacy is, though, still a fragile one and it would only take one more further revelation or a full-blown police investigation in to his affairs to knock him out of the contest. The statement that he was obliged to make today suggests that the next 48 hours will be critical to his candidacy. It is doubtful that the centre-right would have time to nominate an alternative who would prevail.
A Macron triumph would be a small earthquake. His appeal rests more on personality and novelty than a precise policy programme or philosophy. En Marche! is less a political party than a fan club. He would probably be strong enough to mobilise it to win the parliamentary ballot (with the assistance of a large number of Socialist voters) yet exactly what came next would be a mystery in domestic terms but he would be a staunchly pro-EU figure.
If it is Ms Le Pen then, as noted previously, the whole system would be shaken to its foundations. It still looks, nonetheless, as if her ceiling in a second round against Macron or Fillon is 4%.
Who would Theresa May prefer to win?
On balance, Mr Fillon. He is not dissimilar to her in political outlook and is also tough on migration. He is a relative sceptic about the European Union and in particular the European Commission. He would want to be an opportunist on Brexit but ultimately a pragmatist as well. She could deal with him.
Mr Macron, by contrast, is an enthusiast for the Franco-German alliance at the core of a more integrated EU and if combined with Martin Schultz, the SPD candidate for Chancellor in Germany, could be very difficult in the coming negotiations.
A Le Pen presidency would raise the prospect of France leaving the EU which would make the UK issue seem almost an irrelevancy, but whatever advantages that might have for Mrs May in the short-term would probably be cancelled out by the total mayhem that would ensue not only for Europe but the broader international system. Her decision as to which date this month to start the Article 50 process looks minor by comparison with that the French public must take on 23 April and 7 May and the National Assembly vote afterwards.
Tim Hames
Director General, BVCA