Rancorous protests – turning violent in some cases – are a reminder that political opposition to reform will remain even if Mr Macron prevails on Sunday. Legislative elections in mid-June remain a risk: a win for Mr Macron could galvanise socialist opposition. Mr Mélenchon and Mr Hamon, combined, secured more votes than Mr Macron in round one of the presidential election. Mr Hollande was unable to pass crucial legislation last Spring despite enjoying a majority in the National Assembly.
A Macron victory could accelerate the normalisation of ECB policy, but there is a caveat. Reforms are critical to bringing the NAIRU down. If Mr Macron is successful in pushing through changes to labour market laws then growth may accelerate, but the potential path for GDP would be higher too. Successful reforms may tempt other peripherals to follow suit. In such a scenario, the ECB could possibly afford to normalise policy at a slower rate.
Summary
- Legislative elections in June remain a risk
- But successful reforms could lower NAIRU
- Giving the ECB more time to exit unconventional monetary policies
