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Fitch: French Election Reduces Political Risk; Challenges Ahead
May 8, 2017 / 10:41 AM / 7 months ago

Fitch: French Election Reduces Political Risk; Challenges Ahead

(The following statement was released by the rating agency) LONDON, May 08 (Fitch) The victory of Emmanuel Macron over Eurosceptic Marine Le Pen in the presidential election, with around 66% of the vote, removes the risk of a near-term severe political shock to France and wider Europe. The result supports our assumption that France will remain a member of the EU and eurozone, in line with our expectations when we affirmed France's 'AA'/Stable sovereign rating in March. The next key political event is elections for the National Assembly on 11 and 18 June. The outcome is uncertain: Macron's victory was the first in modern French history for an independent presidential candidate, and legislative elections have historically secured majority positions for mainstream parties. It is unclear how much support the president-elect's En Marche! (EM) movement, which he founded only last year, will win, given that at least half of its parliamentary candidates will have no prior political affiliation. A recent poll by OpinionWay-SLPV Analytics for Les Echos suggests that EM could secure the largest parliamentary position (249 to 286 seats), just short of the 290 seats required for an absolute majority. As a single survey that included only mainland constituencies, the poll's predictive capacity is limited. Still, such an outcome would provide the president-elect with a strong parliamentary backing to enact his centrist programme, which features some tax relief measures financed through a reduction in public spending, an extension of welfare benefits, and labour market reforms. He also wants to deepen integration of the eurozone. If EM falls short of an absolute majority, Macron could still be able to implement much of his policy agenda through securing a coalition agreement with another party, or governing as a minority with ad hoc support for different aspects of his programme. But this could make passing reforms more difficult if alliance-building leads to protracted negotiations or political compromises. If voting in the legislative election were to mirror the first-round presidential result, a fragmented parliament would emerge with gains for Le Pen's National Front and Jean-Luc Melenchon's far-left platform. A scenario of "cohabitation" could ensue if the Republican Party were to win a parliamentary majority, making it more difficult for Macron to enact his programme. The presidential election also highlights the sense of disillusion among many French voters, with 48% of the first-round electorate supporting anti-EU candidates, and a relatively low turnout compared to previous final-round elections (estimated at 74.6%, while 11.5% of ballots were blank or void). A challenge for the incoming administration will be to address the concerns that have led to rising support for populist and Eurosceptic parties, such as high unemployment (around 10% in France versus 4% for 'AA' peers), while enacting potentially unpopular economic and fiscal reforms and maintaining a commitment to EU integration. President-Elect Macron's stated commitment to reducing the budget deficit to below 3% of GDP (from 3.4% in 2016) suggests that he will strive to meet the European Commission deadline for closing the "excessive deficit" from this year. Fiscal metrics remain a key driver for France's rating, which benefits from a wealthy and diversified economy, a track record of macro-financial stability, and strong and effective civil and social institutions. Budget deficits spurred by high government spending have resulted in general government debt reaching 96% of GDP in 2016, limiting France's ability to deal with shocks. A track record of a decline in the debt ratio from its peak and structural reforms that boost France's economic growth would be supportive of France's ratings. Our next scheduled review of France's sovereign rating is on 28 July, when Fitch will update its economic and fiscal forecasts, taking into account the policy measures proposed by the incoming administration, its capacity to enact these measures, and our assessment of the economic outlook for France. Contact: Maria Malas-Mroueh Director, Sovereigns +44 20 3530 1081 Fitch Ratings Ltd 30 North Colonnade London E14 5GN Ed Parker Managing Director, Sovereigns +44 20 3530 1176 Mark Brown Senior Analyst, Fitch Wire +44 203 530 1588 Media Relations: Francoise Alos, Paris, Tel: +33 1 44 29 91 22, Email:; Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Related Research Western Europe Sovereign Credit Overview here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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