French presidential candidate François Fillon’s corruption scandal has created great uncertainty for EU investors, who fear the controversy will boost populist candidate Marine Le Pen’s chances of victory in France’s upcoming elections.
Many considered Mr Fillon, the centre-right candidate who won his party’s open primary last November, to be the presidential frontrunner before allegations surfaced that he created fake jobs for his family members.
As a result, Mr Fillon is no longer expected to reach a second-round run-off, leaving the door open for centrist candidate Emmanuel Macron and Ms Le Pen, leader of the right-wing nationalist Front National. Although Ms Le Pen remains behind Mr Macron in nearly every opinion poll, investors are bracing for uncertainty.
“[Le Pen] will be facing a political establishment which has failed to reduce unemployment, tackle terrorism and is largely out of touch with the concerns of ordinary voters,” says Mujtaba Rahman, managing director for Europe at Eurasia Group.
Likewise, recent polling blunders – in the US presidential election and the UK’s EU Referendum – have many investors preparing for a potential Le Pen victory. Most notably, French 10-year government bond prices plummeted to an 18-month low following Mr Fillon announced his intention to remain in the race.
Ms Le Pen’s bold blend of nationalism and euroscepticism has left many investors worried. Some of her most notable proposals include a complete withdrawal from the EU, tax penalties against domestic companies that hire foreigners, and the gradual removal of immigrants, both legal and illegal, living in France.
Mr Rahman categorises her election as “a low-probability, high-impact event that would shake the eurozone and EU to its absolute core”.
Regardless of the result, Ms Le Pen’s movement has raised serious questions about the structure and future survival of the EU. Other than her rise in popularity, the EU is still reeling from Brexit, the ongoing Greek debt crisis and upcoming contentious elections in the Netherlands and Germany.
“European integration has progressed to a certain point, but it has not [been able] to supersede national governments [and] respond to electoral shocks from below,” says Joseph Downing, a research fellow at the London School of Economics.
Unless structural changes are made to the EU, it is likely that the decisions of individual member states will continue to produce market-wide trends for the foreseeable future.