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All About France

| April 24, 2017

The United States is not the only place in the world seemingly divided between flyover country and urban elite enclaves. In the days and weeks leading up to the elections in France yesterday, fear gripped global equity markets that the two runoff survivors would be ultra-leftist Jean-Luc Melenchon and ultra-righty National Front leader Marine Le Pen, united from opposite ends of the political spectrum in their support for leaving the European Union. That dreaded outcome would have given the markets a lot more change and upheaval that they bargained for.

Crisis averted, for now. Today, domestic equity markets are following the lead of their European brethren in breathing a sigh of relief that the two runoff survivors are Le Pen (21.4% of the vote) and political newcomer Emmanuel Macron, who led the way with 23.9%.  The relief is real, although we have concerns that the “holding of the center” in France has a ways to go to prove its durability.

Two things stand out to us.  First, as in the case here at home, the political establishment was a clear loser in the French elections. Political junkies will continue to debate whether Macron is a true newcomer or a stealth establishment candidate, but that is all semantic quibbling. Melenchon, representing the long-dominant socialist party, was only able to garner 19.6% of the popular vote. Francois Fillon, the establishment candidate from the right, received 19.9%.  The two outsiders, Macron and Le Pen, won the first round, and one of them (Macron is favored) will be the next president of France.

The second notable point is that the old French middle class has been outsourced, and voters are desperate for solutions that traditional parties seem powerless to fix. Entry level, temporary (the euphemism is “fixed-term”) jobs are killing the aspirations of millions all across the developed world, and France is not immune.  Fully 40% of jobs available to French workers are of this dead-end variety. An entire generation of Europeans is facing economic stagnation. Sound familiar?

Durability of widespread, positive economic outcomes will be required to “solve” the great divide that has come to the fore so visibly and powerfully in recent elections here and abroad. Politicians of all stripes would be wise to take note.