Topic/Theme Reports

Country Risk Chat: Foraging for Trump Truffles in France

Scott MacDonald PhD

March 1, 2017

 

Our contributing Country Risk Analyst, Dr. Scott MacDonald has been the “galloping gourmand” of fine French dining in the Bordeaux region as he samples the latest harvest of black truffles with his trusty nose pour vin, de la viande, du fromage et du pain.

Dr. Scott still has time for more professional activities as he also forages information from his friends, family and acquaintances along the French countryside and major metro areas, like Paris. His informal survey has taken the pulse of the political season in France and provides useful background intelligence on the possible populist revolt emerging on to the scene in-line with the Trump revolution in the USA.

Below are Dr. Scott’s impressions of the Trump-inspired political truffle season that is ending up as quite a tussle for power.

·   Although there are enough people to put Le Pen in front, nobody I spoke to liked Le Pen or had any intention to vote for her.  I stick to my earlier view that round one goes to Le Pen and Macron, Round two goes to Macron.

 

·   What could change this is another major Islamic attack.  People have a worry over this and it would feed into support for Le Pen.  This would only magnify worries built-up by earlier radical Islamic attacks that have hit the country.

 

·   There is an outside possibility of the left falling more behind Hamon, the Socialist. If he would win, even conservatives would probably vote for him over Le Pen, but Hamon would be a disaster for the French economy.  Macron would probably be a good decision for France as his programs (at least as in his platform) are more market-driven and would reduce the role of the state in the economy. The same could be said for Francis Fillion, the conservative candidate, who is currently dragged down by a scandal involving questionable payments of salaries to his wife and two of his children by the government.

 

·   Unlike past elections, 2017 is something that French people are deeply concerned about. They saw what happened with Trump and Brexit and are concerned that it could happen in their own country.

 

·   What does all of this mean for markets - volatility through the next several months for French sovereign and bank bonds and a sharp difference between them and German bonds (as a safe harbor).  It also holds up the US, despite major questions over economic policy, as a safe harbor.  Investors are also finding Swedish, Danish and Norwegian bonds as more attractive despite questions over oil prices (Norway) and the state of Danish and Swedish real estate markets. Real GDP growth in those three countries is relatively strong, public sector debt levels are low and unemployment is falling.  France remains the main focus of investor nervousness, but the Dutch elections take place on March 23rd and the populist far right is expected to win the largest number of votes, but probably cannot form a majority government.  The populist surge in Europe will remain a disruptive force for markets, though governments are likely to remain in the hands of more moderate, traditional pro-EU parties (with the possible exception being Italy).

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