Francois Fillon secured the French Republican party's nomination for the 2017 presidential election this weekend and in doing so became the potential savior of French bond investors and the euro.
The price of French debt has plunged in recent weeks after the surprise victory of Donald Trump in the U.S. stoked fears that France's far-right party, The Front National, could pull-off a shock victory in next year's French Presidential elections.
Yields on 10-year French government bonds, which move inversely to prices, have risen to 0.766, up 46 basis points, since November 7, the day before the U.S. election, in concert with government debt around the world but at a much quicker pace. The move widened the yield gap between French 10 year bonds and their German 10 year equivalent in the wake of Trump's victory, meaning investors demand at least 0.5% more in return to hold French debt.
Polls have regularly shown Front National Marine Le Pen will win France's first round of voting, at which all candidates are considered, before she is defeated in a second round run-off between the two most popular candidates.
France's ruling left party is in a shambles. President Francois Hollande's approval rating recently dipped to a record low 4%. His Prime Minister Manuel Valls, over the weekend, suggested he would run for President against Hollande - potentially splitting the left's vote even further.
That means it will almost certainly fall to Fillon to defeat Le Pen and her economically disastrous protectionist platform that includes a promise to leave the European Union.
Few expected Fillon to be in this position. The former Prime Minister, who served under President Nicolas Sarkozy (and beat his former boss to the Republican nomination) was considered an outsider for his party's nomination. A combination of solid, if unspectacular, debate performances, and the lacklustre campaigning of his main rival Alain Juppe, another former Prime Minister, saw Fillon rise from long-shot to overwhelming winner, with 67% of the vote in the primary held Sunday.
Fillon has promised an "economic shock" for France, including tax cuts for corporations to bring France inline with the Eurozone average. That could boost corporate profits by about 23%, according to Exane BNP, which, on Monday, claimed that Fillion's election "could be the positive surprise of 2017."
Yet a Fillon victory also promises to be divisive. Corporate tax cuts would, in part, be financed by a hike in consumption tax, which could weigh on French consumer spending and his popularity. His plan to cut 500,000 government jobs in five years and trim €100 billion from the government budget, bringing it inline with the Eurozone average spending of 49% of GDP, will be met with vociferous opposition from unions and the political left.
France will brace itself for strikes.
"You now have a conservative right, which has a vision of French life from the 1960s and a vision of the economy from the U.K of the 1980s," said former Economy Minister Emmanuel Macron, alluding to Fillon's self-confessed admiration for former British Prime Minister Margaret Thatcher. Macron, a former Rothschild & Cie investment banker, will run as an independent candidate in the presidential elections.
For now worries about Fillon the President will take a back seat to concerns about Fillon the candidate. Analysts seem unsure if his ultra-liberal, by French standards, economic platform will alienate working class voters and boost Le Pen's prospects; or if his ultra-conservative, again by French standards, social platform will drain her support.
The most recent polls make Fillon the clear favorite for the Elysee Palace. The Republican candidate would win the first round of voting against Hollande, Macron and Le Pen, emerging with 32% of the vote against Le Pen's 22% and Macron's 13%, according to a survey conducted Nov. 25 by Odoxa-Dentsu for France 2. Fillon would then defeat Le Pen by 71% to 29% in the second round, as left-leaning voters rallied behind him to ensure Le Pen's defeat, according to the same pollster.
A second poll, commissioned by LCP and conducted Sunday night by Harris Interactive, had Fillon beating Le Pen 26% to 24% in the first round of voting, and then 67% to 33% in the second round.
The figures are likely to reassure. Bond yields on French debt have fallen 3 basis points since Friday after Fillon's nomination was confirmed. But there is a long way to go before voting on April 23 and May 7, and pollsters credibility, post Brexit and Trump, is not what it used to be.
French debt markets will remain nervous until the final tallies are in.