France had the first round of its presidential election yesterday, and in order for a candidate to win, they would have had to receive over 50% of the votes. If no candidates gets more than 50% of the votes, then the top two candidates move on to a run-off election on May 7th.
No candidate received 50% of the votes, and the two top candidates were a centrist candidate, Emmanuel Macron, with 23.7% and right-wing candidate Marine Le Pen with 21.7% of the vote. It is noteworthy that this was the first time in modern history that no mainstream party made it to the second round run-off.
Prior to the election the markets were worried that France would end up having a run-off election between a far-right and far-left candidate, both anti-EU, which could have meant the effective end of the European Union as we know it.
But centrist candidate Emmanuel Macron made it to the run-off against the anti-EU Le Pen. Current polls project a Macron victory as he is running at 69% to 31% for Le Pen. The markets tend to like the status quo so a projection of a Macron victory has sent the Euro and global equity markets higher, while gold and other “safe- haven” bets moved lower.
While the markets are ‘relieved’ that Marcron is leading the polls, we must remember that he is very pro-EU which represents the status quo, meaning continuing down the same flawed path. Einstein defined insanity as “doing the same thing over and over again, expecting different results.”
The mainstream media is hailing Macron as a pro business candidate, but we must remember that not only is Macron pro the EU, he wants the EU to have even more power. Europe has spent the past four decades living in an ‘age of entitlement’, with governments offering handouts every election, treating its voters like heroin addicts, their motto being “just promise them more stuff, and they will be happy.” It didn’t matter which party, they all did the same thing. The problem was they didn’t have the money to pay for all these freebies, and now we are on the verge of a massive debt crisis.
We are not promoting Le Pen as a better choice, but we are saying that by electing a pro EU leader the French people will be sending a very dangerous message to the politicians and bureaucrats in the EU. A vote for the status quo will be seen as an endorsement by the political elite.
As investors it tells us that should Macron get elected the problems in the EU will continue because the pressure to reform will subside. Those in charge have run the European economy into the ground, initiating monetary policies that included forcing negative interest rates onto consumers. They have robbed the seniors of any return on their savings, and have now jeopardized pension funds, which have incurred massive funding gaps thanks to low rates.
And look what all their policies have done for the young people in Europe. These are the current unemployment rates for young people under 25 in each country. Seven countries have a youth unemployment rate of over 23%, including Spain, Italy, and Portugal.
While the mainstream media is applauding a pro- EU president for France, as investors we see it as a vote for the status quo which will delay the required reform to get Europe out of its financial mess.
European countries have deep, rich, and varying cultures, and the concept that 19 countries with vastly different cultures, could co-exist, sharing a single currency, but not a single debt, was doomed from the beginning. It puts countries with under-performing economies at the mercy of those with more robust economic performance.
A pro-EU president for France will simply delay the required positive reforms and prolong the “era of entitlement” driving the economy further into the ground until we hit the “age of consequences.”
The EU needs another smack in the face much like Brexit, forcing major reforms to how it manages its economy. A pro-EU vote will simply delay the much needed reforms in Europe.