In April and May this year the French presidential election will be held, which is expected to be a tight race between Fillon from the centre-right Republicans and Le Pen from the far-right Front National. Although voters in the past have united to prevent the far-right from winning, nothing can be ruled out given the current populist, anti-establishment mood in Europe and the uncertainty around opinion polls. The key question will be whether the candidate facing Le Pen will be able to successfully unite moderate French voters against the far-right, in a country still struggling with high unemployment, a muted economic and fiscal outlook and terrorism threats.
Political uncertainty will be particularly high in the event of a Le Pen presidency under 'cohabitation', and it is not clear that a referendum on a euro/EU exit can really be held under these circumstances. Should Fillon win the presidency, his reform proposals would address many of France's economic challenges, such as labour market rigidities and a large public sector. On the other hand, the weaker fiscal outlook under a Le Pen presidency could cause renewed focus on France's sovereign credit rating, with a clear risk of a downgrade.
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