France: Is Frexit next on the cards for Europe? – BMO CM

Jennifer Lee, Senior Economist at BMO Capital Markets, explains that there is still a lot of risk and much of it is political from European elections and although markets breathed a sigh of relief at the Netherlands outcome, they still have two big ones to contend with—France and Germany.

Key Quotes

“The former is next on the radar, with the 1st round vote on April 23rd, and the 2nd round on May 7th. Trust them or not, the polls have maintained that the National Front’s Marine Le Pen would win Round 1, while former Economy Minister-turned-Independent Emmanuel Macron would win Round 2. (This assumes Le Pen is able to secure funding for her campaign; apparently, even with her dad’s loan, she is still short on funds and cannot get a bank loan.) Do not dismiss the possibility of a Le Pen victory. She still has a lot of support and is expected to take close to 40% of the votes in the 2nd round, which is significant.”

“And if there is a low turnout, French physicist Serge Galam warns that Le Pen “could benefit because a substantial number of people who say they will vote for her rival may not actually go to the polls”. Yes she may soften her rhetoric in order to win over the centre-right, but the basis of her platform remains: within six months of winning the presidency, Ms. Le Pen would hold a referendum on leaving the EU (i.e. Frexit) and bring back the French franc. And if a ‘Yes” vote prevails, that could mark the beginning of the end of the EU.”