A sideways look at economics
According to a poll conducted by Elabe, through Wednesday and Thursday of this week, 24.0% of the French electorate will vote for M. Macron in round one of the French Presidential elections, to be held this Sunday. It also suggested that 21.5% would vote for Mme Le Pen, 20.0% for M. Fillon and 19.5% for M. Mélenchon. To our mind, and particularly in light of recent electoral experience, that makes the result ‘too close to call’. Put more formally, on those figures we would fail to reject the null hypothesis that all four leading candidates have an equal chance of winning through to round two.
As readers will doubtless be aware, two of the four leading candidates would like to change substantially the nature of the relationship that France currently enjoys with the rest of Europe. Mme Le Pen is committed to taking France out of the single currency, while the Socialist M. Mélenchon is vehemently opposed to globalisation, and regards the EU as an institution that has been corrupted by neo-liberalism. Were he, as President of France, to fail in his attempt to reform the EU, then he would look to withdraw.
Working on the premise that all four leading candidates have an equal chance of coming in the top two on Sunday, what are the odds that more integrationist members of the French electorate are left facing a Hobson’s choice? Probability theory tells us that there are 4!/(2!2!), or six ways of picking two candidates from four where order does not matter. The odds, then, that both M. Mélenchon and Mme Le Pen make it through to the second round are as great as one in six. Equally, there is a one in six chance that it is M. Macron and M. Fillon who face each other on 7 May, thereby ensuring a more centrist President. What of the remaining two thirds of the distribution?
It is often asserted that, were the final contest to take place between Mme Le Pen or M. Mélenchon and one or other of M. Macron and M. Fillon, then voters who were disappointed by the outcome of round one would rally behind the more centrist candidate. That may be the case, or it may not. Let us assume, for argument’s sake, that either Mme Le Pen or M. Mélenchon would stand just a one in four chance of becoming President were they to face either M. Macron or M. Fillon in round two. Simple arithmetic then tells us the probability that France winds up with a leader whose actions would risk provoking a total break-up of the single currency is: 1/6 + 2/3 * 1/4 = 1/3. Those odds are uncomfortably high, in our view. They are also remarkably close to the weight of 30% that we attach to our ‘isolationist’ risk scenario in our Global Economic and Markets Outlook for 2017 Q2.
