France: How could Le Pen win?

Concern that the right-wing populist Marine Le Pen could become the next French head of state is dogging the markets: since the beginning of the year risk-aversion has increased significantly. Although the risk premiums of 10-year French government bonds over Bunds have come down visibly again in the past few weeks, spreads are still at a clearly heightened level compared to the time before the beginning of the electoral campaign.

Investors’ concern is based above all on the polls carried out for the first round of voting. In these polls, the leader of the FN and the liberal candidate Emmanuel Macron were neck-and-neck with scores of around 26% each. So Le Pen is almost certain to make it into the run-off vote. In the opinion polls for the final vote Macron is in turn well ahead of Le Pen. As things stand at the moment, around 60% to 65% of electors are likely to vote for him. Although the polls are clearly in Macron’s favour, more than a few investors are considering the possibility of a surprise outcome to the presidential election in light of the Brexit vote and the US election.

A scenario analysis shows that a victory for Le Pen is unlikely despite the possibility of statistical errors. This analysis attributes a potential Le Pen victory to a low election turnout, on the one hand, and to a migration of voters in her favour from the left and moderate camps, on the other. The results of this analysis show that for a Le Pen victory either the election turnout in the run-off vote would have to be historically low at less than 60% or the migration of voters from among the supporters of the other candidates would have to be far greater than the opinion pollsters predict. But given the considerable public attention directed at the election, the turnout is not likely to be at an all-time low.

Nor (with seven standard deviations from the average) is it realistic to assume that Le Pen will be able to attract half of Fillon’s supporters and a fifth each of Hamon’s and Mélenchon’s supporters, which she would need to do if she is to secure victory. The ideological differences appear too great. A Le Pen victory only looks possible if both factors – a low election turnout and a higher share of the votes from the moderate and left camps – were to come together. But this would mean the election turnout could not be higher than 70% and that 40% of Fillon’s supporters and 15% each of Hamon’s and Mélenchon’s supporters would have to vote for the FN leader. But the probability that these two pro-Le Pen factors could coincide in this way is probably not very high, either.

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