France: Mélenchon for President?

Just as the economic upswing is at last gaining momentum in France, the ultra-left presidential candidate Jean-Luc Mélenchon is rising in the polls.

While the centrist reformer Emmanuel Macron remains the favorite to win the Presidential race, there is a risk that neither Macron nor the center-right reformer François Fillon may win one of the top two places in the first round of the presidential vote on April 23rd.

That risk now looms larger than before. For France, Europe and the markets, a run-off on May 7th between Mélenchon and the ultra-right candidate, Marine Le Pen, would be a choice between bad and ugly.

The odds that Le Pen will be the next French president may only be in the 10% range. However, there now is a similar 10% risk of Mélenchon winning.

Mélenchon’s rise

Following a spirited performance in two TV debates, Mélenchon has risen to just above 19% in opinion polls, on par with Fillon and just 5-6 points behind ultra-right Marine Le Pen (22.3%) and Macron (23.4%) average in the last eight polls).

Mélenchon’s eight-point gain in the past four weeks has come mostly at the expense of the official Socialist Party candidate Benoît Hamon (now down to just 7.8%).

Enlarge Support for candidates in the first round of the French presidential elections, average of last eight opinion polls. Source: National Opinion Polls

The probable scenario: A reformer wins

Despite all that, it still seems likely that Macron will make it into the second round and beat Le Pen handsomely on May 7th. Polls for the second round give him a clear and stable 64 % vs. 36% lead over Le Pen.

Although Macron would very likely not win a majority for his centrist “En Marche” movement in the parliamentary elections that will follow the presidential vote (on June 11th and 18th), the expectation is that Macron will be able to forge a pro-reform coalition with center-right and center-left parliamentarians thereafter.

That would be a dream scenario for France and Europe, since it provides wind in the sails of the reform camp.

If Fillon makes it into the run-off against Le Pen instead of Macron, he would probably win the presidency and, like Macron, would be able to forge a pro-reform coalition of his own after the parliamentary elections.

Mélenchon Vs. Le Pen?

But what if Mélenchon manages to push Macron into third place on April 23rd for a run-off round against Le Pen two weeks later?

Mélenchon would then be the favourite to win. His lead over Le Pen would be smaller than that of ‎Macron but slightly above that of Fillon Vs. Le Pen.

If Le Pen faces Mélenchon rather than one of the two reformers in the second round, the risk that she could win the presidency would increase modestly.

President Mélenchon – what if?

Supported by the French Communist Party and his own ultra-left political movement (“Unsubmissive France,”) Mélenchon espouses hard-line leftist views.

Mélenchon wants France to withdraw from NATO and renegotiate EU treaties, as he wants to purge them of “neoliberal” traits. If unsuccessful in that endeavor, he threatens to quit the EU.

Mélenchon also proposes to end the independence of the European Central Bank (ECB) and use the Banque de France to finance the French budget.

Even so, much like Le Pen, a president Mélenchon would struggle to win a majority in the upcoming National Assembly elections.

France’s traditional center-right do much better at the legislative elections than in the presidential vote. While Fillon’s “fake jobs for family” scandal has hurt his chances to become president, this scandal should matter much less for the center-right candidates at the constituency level.

A president Mélenchon would therefore probably end up mostly as a “lame duck,” unable to push his agenda through parliament.

All that a Mélenchon victory could bring about

Without the support of a prime minister backed by parliament, he would most likely be unable to table a referendum on EU or euro membership.

However, a Mélenchon presidency would be a severe blow to hopes for pro-growth reforms in France and stronger cooperation within the eurozone.

It could trigger capital flight and severely dent investment in France. The confrontation between Mélenchon-type dreams and economic realities could be costly not only for France, but also for the eurozone as a whole.

The economic upturn may suffer noticeably at least until the dust has settled and the political outlook for F‎rance has become clearer.

The experience of Greece, where a radical-left government derailed the country’s nascent economic upswing in 2015, can serve as a warning sign with regard to implementing a radical left agenda. Fortunately, a president Mélenchon would probably not have the power to do so.

Further possibilities

Moreover, a French prime minister backed by a potential pro-reform majority of center-right and center-left forces in parliament could still try to move France and Europe forward — even against the wishes of a president Mélenchon.

However, the threat that the president could dissolve parliament would probably make a parliamentary majority reluctant to take ‎unpopular measures such as serious labor market and fiscal reforms.
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In addition, a Mélenchon win would exacerbate the crisis of the French center-left. How the various factions — ranging from the supporters of Macron to those of Manuel Valls and those of Benoît Hamon — would re-align after a Mélenchon victory remains a very open question.

A split in the Socialist party already seems very possible. Some left-wing Socialists would probably choose to support Mélenchon, although most would probably not do so.

Mélenchon’s agenda

Jean-Luc Mélenchon shares Marine Le Pen’s euroscepticism, but he is more ambiguous about it.

At home, Mélenchon proposes to increase spending by more than €250 billion a year, to hire more teachers, health workers and police officers (aiming for an increase of 60,000) and raise public sector wages.

Mélenchon also wants to transition from a 35-hour week to a 32-hour week and lower the standard retirement age from 62 to 60.

Unperturbed by past experience and evidence, he intends to finance the surge in spending partly by higher taxes. Mélenchon’s income tax will be even more progressive, with the marginal rate up to 90% for higher wages. He also wants to increase the wealth and inheritance tax.

However, even these tax hikes would only partly make up for the rise in government spending. That is why Mélenchon suggests to take on more debt, with the fiscal budget deficit falling only very slowly from 3.3% in 2016 to 2.5% by 2022.

For more details on his presidential platform, see Mélenchon’s website.