64: Make France Great Again

in the United States. It's almost They had a chicken creep that sounds lovely, and one of my daughters had a grilled cheese sand which they really don't vary the children's menu restaurants. Hello, and welcome back to Bloomberg Benchmark show about the Global Economy. I'm Scott landman and economics editor with Bloomberg News in Washington, and I'm Kate Smith, an editor with Bloomberg in New York. So, Kate, are

are you much of a Franco file? Um? You know, I've never really been to France, which is a little embarrassing, I know, right, But I think everything I've heard about French culture, I don't see why I wouldn't like it, you know, like the that gets the coffees, the striped shirts, the berets. There's a lot to like there, there's a lot to like. I've been I've been to France once, just for a couple of days, but I don't speak French.

And you know, one of the highlights of this week for me was going with my family to eat at La Madalene for dinner, which is a chain of French restaurants in the United States. It's almost had a chicken creep that sounds lovely, and one of my daughters had a grilled cheese sandwich. They really don't vary the children's menu in restaurants. That sounds a lot better than the sad desk salad that's awaiting me in a few minutes after Well. Anyway, that kind of leads into our topic

for today. You know, you go back to June this year, the voters of the United Kingdom gave us Brexit. Then Americans decided to elect Donald Trump as president. Now, over the next few months, the world is going to turn its eyes to France, and they already are in some ways.

It's it's the sixth biggest economy in the world and the third largest in Europe, and it's where a rising anti establishment, anti immigrant movement is threatening to deliver another blow to those smug global elites who think they know it all. Oh man, that the smug global elites, right, Scott, they got it coming again. I know, I know, it's not just the coastal elites this times, the global elites.

All right. Well, it's true though, populist anti immigrant movements are really they're really gaining a lot of traction across Europe, and in France, the National Front, and that's led by Leapin, a forty eight year old lawyer by training. She's one of the prime examples. She's pledged that if she's elected president, she would take the country out of the European Union and the eurocurrency and resurrect France's borders. Economic conditions in

France are are running in her favor. You've got unemployment around ten percent, which is close to a record high. The nation's reeling from a series of terror attacks over the past year, the migrant crisis of straining Europe. Although even with those things, she still isn't actually favor to win the French election. But then again, neither were the

pro Brexit crowd or Trump. And you know, here's another great parallel, Lapen is In, another admirer of Russian President Vladimir Putin, just like Trump, and both have expressed doubts about climate change being caused by humans. Leapin is called globalization and I quote another kind of totalitarianism. Joining us now to explain the situation in France is Nicolas Veron, a former French government advisor who's a scholar at both the Brugal think Tank in Brussels and the Peterson Institute

for International Economics in Washington. He joins us from neither of those cities, but actually is in London and stopped by our office today. Nicholas, thanks for coming on our show. Thanks for having me. So can you first tell us a bit about how the National Front got started and how Marine Lepine has gone from someone at the fringes to someone with what seems like a legitimate chance of

becoming Francis leader. I think in comparison with Brexit and Trump, I think it's important to get the right perspective of time and the National Front is not the new movement. It didn't appear in the last few years, let alone

the last few months. It's been around for more than thirty years very prominent in the French political landscape, founded by Marine Lepine's father, Jean Marie lepan Um, who actually made it into a significant political party in the early eighties, and Jean Marri Lupin also made it to the second round of the French presidential election in April two thousand and two, uh to general surprise, he was soundly defeated in the second round by Jack At the time, but

this was a big shock, not unlike what we've seen this year in the UK and the US, so it's not like we have an entirely new phenomenon. But it is also the case that Marion Leapin uh so, the party founder's daughter, is a very talented politician in her own right, has built momentum for her party with strategies that are uh as that have parles with those of

her father, but also have differences. And uh Indeed, I wouldn't expect her to win the election next year, but nor did I expect Mr Trump to win the US elections, So you shouldn't take my opinion for guidance, Nicholas. Let me let's back up for just a moment. How exactly does the French presidential election work right. Um, So the

short answer is it's a two round elections. The two rounds are separated by two weeks, so we have a first round in late April, second round in early May, and in the meantime people make up their minds on how they want to voot on the second round. With just two candidates, there cannot be more than two in the second round. In the first round there can be many candidates, and we don't know yet exactly how many,

but it's probably a dozen or more. So the saying in Frances, in the first round people choose whoever they like most. In the second round, the eliminate whoever the like least. And I think this is likely to apply

to the election next year. Even so, there are also strategic French voters, typically very politically aware, so there some will also have tactical or strategic considerations in their voting patterns because they wants this also candidate to make it to the second round rather than the ones they prefer. In absolute terms, that is that a straight popular vote in both rounds. Nationwide, Yeah, I think only the US has this uh very bizarre system with the electoral college.

For the first time ever, we have primaries boots for the mainstream central right party and for the mainstream central

left parties. Now, this process of primaries is unprecedented, being on the two sides, and means that there are actually multiple scenarios for the election, Because I believe it or not, there are two rounds of voting for each of the primaries, so two rounds for the center right, two rounds for the central left, and all these are national votes, so we'll get six rounds of voting before we know the name of the president, which means that it's very difficult

to predict exactly where the equation will be for French voters. There is also an expectation that important candidates may pop up who are neither the center right winner of the primary north or central left winner of the primary norm Mrs Lupin for example, Emmanuel Macron, a former economics minister, is a young, extremely talented politician who is fairly disruptive and has just announced the candidacy of his own and frankly he has a chance to make it to the

second round on current expectations. So this is very unpredictable election. Lots of resentment against the establishment, also lots of fear of chance in France and ambiguity about chance, a change in globalizations and the European environment and social and economic dynamics influence itself very difficult to know what will come out of it. So just a clarify necklace. So exactly what has to happen for the pen herself to win?

I mean, so there's obviously no electoral college, and it's just it's just a simple popular vote and that can win the election. And who does it depend on who the opponent is too? Could she actually win if there's a weak opponent or is it likely to produced the strongest opponent? Yeah, so she will be the candidate date of her party is the National Front. In the first round, there will be as I said, a number of other candidates in the first round, and on current polling to

be confirmed of course, don't believe the polls. She is likely to make it to the second round and in the second round to face off whoever comes first or second in the second round. Uh so has the plurality of votes apart from the votes she would get into sound two. Jack Chirac, who was a sort of mainstream central right incumbent, defeated her father by I think more

than eighty percent of the vote. Uh. This time, the expectation is that she probably cannot make it to more than fifty in the second round, but she might make a very strong showing in that round of voting, and therefore lots of uncertainty. It's going to be really interesting to watch. We're going to take a break right now for a word from our sponsor, and when we're back, we're going to talk more about the impacts on the economy and the Eurozone. Brought to you by Bank of

America Merrill Lynch. Seeing what others have seen, but uncovering what others may not. Global research that helps you harness disruption voted top global research from five years running. Merrill Lynch, Pierce, Venner and Smith Incorporated. Welcome back, Nicholas. I want to ask you now to talk about more of the economic issues. Uh. You know, you had people of the UK voting to leave the European Union. Uh. You know, you had Greece hanging the balance with its fate in the Eurozone for

the last several years. What what would happen to the euro and the European Union if mrs had won the election? Well, first, even so six rounds of voting to get to the knowing our president sounds like a lot. It's not the end of the sequence because after the presidential election you will have a parliamentary election and that will actually determine the majority in parliament. And therefore the government, including the Prime Minister, which is in the French system, is a

separate person from the president. So even if Mrs Lupin wins as president, it's not to be taken for granted that she will have a majority in parliament, so she'll have major checks on her power. If if she were to win this president well, if it depends on the result of the parliamentary election. If she wins the presidency and also gets a majority for her party in the parliament, and she wouldn't have many checks. She would be very powerful.

But if she wins the presidency and doesn't win a majority in Parliament, then it's not even clear that she will have that much of an impact on policy. Well, what's the greater chance right now winning the presidency or National Front getting a majority in parliament. I think she has a much greater chance of winning the presidencies and

of controlling parliament. But frankly, it's so unprecedented. The idea of the National Front, a far right party, non mainstream, winning the presidency is that we just don't know, and there I'm not aware of any reliable pulling on the parliamentary election at this point. They will probably come later

in the election cycle. But even assuming that she would, which I think is not very likely but not impossible, that she would control Parliament and therefore be able to govern on her platform, it's not even clear in that assumption that she would get Friends out of the Eurozone, because what she's now saying is that she would seek a concerted dismantling of the Eurozone, but by common agreement of the different hero Zone countries. In other terms, she's

not advocating a unilateral withdrawal of Friends. Now, this is very Frexit, well exactly basically a commonly agreed break up, but not a withdrawal, just a France. So she basically what she's saying is, my leadership will allow me to convince all the other European member states, including Germanys, that the euro is really a bad idea and should be ditched. Now, the likelihood of this happening, obviously is very low because in most euros own member states, there is a very

strong support for the Euro. I was yesterday in Portugal in in Portugal, believe it or not, after a Troy cap problem program and a lot of economic hardship in the last few years, support for staying into your zones more than nine. And that's not too unusual. In many European member states, including Greece, you have very strong majorities to keep the Euro. And that's the case in France

as well. So people like the PEN A number of people like the Pan as an anti establishment figure, but that doesn't necessarily mean that they take her anti euro red week seriously, let alone literally. Well, let's let's take another step back and talk about some of the challenges that France's economy faces. What what kind of situation is it in, you know, what what kind of challenges does it have that are unique to the nation, and what does France face that that has proved in common with

much of the rest of Europe. You know, France is a bit of the middle of the world country into your zoo, and it's not the worst performer, it's not the best. It doesn't have problems that are unique, it has problems that are shared by a number of other member states UH law productivity grows, lots of frigidities into the economy and at least the labor market, but also

the goods and services markets. Not enough competition, not enough entry of fast growing firms into established markets UM and UH and also rigidities in society, difficulty for people to you know, a por social mobilities not what it should be. Even so, actually income inequality is much lower than in says the US or the UK, and hasn't been growing UH and that makes Friends a bit of an outlier. Indeed, including in the continental European context, hasn't been growing in

the last few years. So it needs reform, It needs more growth, It needs uh an economic systems that is more friendly to investment and corporate development and innovation. But I would say none of these problems is extremely acute. So it's more like a chronic condition, if you will, of insufficient dynamism and insufficient economic vitality riders and specific issues that is very, very prominent and specific to that country.

We're talking now about just over a year after the terrible incident at the Battle Clan in Paris, and there have been several there's like the one in Niece of the past year. Has has that affected people's mindset? Uh, you know, both from a political and economic standpoint. It has affected the economy because it has affected tourism. Um.

External perceptions obviously matter in this area. Domestically, I think it has added to a sense of gloom and it has added to the unpopularity of the government because there has been a feeling after several of these attacks, including the one on July fourteens this year in this that the government wasn't doing everything possible to protect the people against this sort of assault. So so it has added

to the negattivity of public feeling in France. I wouldn't necessarily say it has created a whole different political dynamic of its own. In a way, it has only reinforced skepticism that was already present in the population before this wave of attacks started in January two sound fifteen. Now, looking at the rest of Europe, or maybe just next door at Germany, which is also moving to elections, Chancellor Markel's reputation has taken something of a hit or popularity,

I guess because of the refugee situation. What's the state of the movement towards populism and uh, you know, are we going to have a similar conversation about Germany next year? I don't think so, Frankly. I think the political equations in Germany are very different from what they are in France. And as I mentioned before, the National Front in France is not a new phenomenon. It's been around for more than a generation as a strong national protest party. There's

nothing comparable in Germany. There is a new party's alternative for Germany's that is pulling about what the National Front was making in France thirty years ago, but it's far from being complating a position of national power. And therefore I think there is a bit of an easy parallel to make in terms of populism gaining everywhere. The reality is that the political prospects are very different from one European country to another, and there is nothing comparable to

the possibility of Martin Lepin being president in France. There is nothing comparable to that in Germany. At this point, Nicholas will have to leave it there. Thank you so much for joining us. This has been a really interesting and fascinating conversation, and thanks a lot for having me, all right, Benchmark will be back next week, and until then, you can find us on the Bloomberg Terminal and Bloomberg dot com, as well as on iTunes, pocketcasts, and Stitcher.

While you're there, take a minute to rate and review the show so more listeners can find us and let us know what you thought of the show. You can talk to us and follow us at Twitter. You find Scott at Scott Landman. You can find me by Keith Smith. And our guest Nicholas is on as well, and you can find him at Nicolas Underscore or Not. And it's v R O N better on exactly Everything's better in French. Thanks for listening, See you next time. Brought to you

by Bank of America. Merrill Lynch. Seeing what others have seen, but uncovering what others may not. Global Research that helps You Harness disruption voted top global research from five years running. Merrill Lynch, Pierce, Fenner and Smith Incorporated