Macron, Merkel and the euro the big winners

Independent Emmanuel Macron won the French presidential election against the National Front’s Marine Le Pen with a larger than forecast 65.5% of the vote.

In Germany’s northernmost state of Schleswig-Holstein Chancellor Merkel’s Christian Democrats (CDU) handily defeated the ruling Social Democrats (SPD) by 33% to 26.7%, gaining 2.3% while the SPD lost 3.7%.The Macron and CDU victories will be welcomed by markets; the euro will likely chalk up further gains, continuing its positive run over the past two weeks.

The Macron and CDU victories will be welcomed by markets; the euro will likely chalk up further gains, continuing its positive run over the past two weeks.

In some respects, the CDU victory holds greater immediate significance than Macron’s, which was in little doubt after his win in the first round of the presidential pools. The second clear victory of Merkel’s party in six weeks, could portend another election victory for the CDU in next Sunday’s polls in the much larger state of North-Rhine Westphalia, and would thereby almost certainly banish the spectre of a so-called red-red-green coalition of Socialists, ex-Communists and Greens coming to power in national elections in September.

Such a coalition had appeared to become a realistic possibility when the SPD in mid-March selected former European Parliament President Martin Schulz its candidate for chancellor and registered strong gains in opinion polls. However, two state elections later, the Schulz effect appears to have burnt itself out, and with it the danger that higher taxes and large deficit spending could undermine Germany’s lead role in sustaining European growth and financial stability.

Has the convincing Macron victory sidelined and perhaps put an end to the ascendency of nationalist populism?

Not by a long shot … though, along with the confinement of the German nationalist right to the 5-10% range in recent elections, it points to at least temporary limits to its growth potential. A most important caution is that in Italy, Europe’s fourth-largest economy, populist oppositionists would likely win if a national election were held today.

But a Merkel victory in Germany in September along with the Macron presidency in France would greatly stabilize the European political and economic center under German-French leadership and avoid the emergence of a dangerous political vacuum and policy uncertainty in central Europe.