Pardon My French: “Words Speak Louder Than Actions”

On Monday, we brought you all the latest (and more) on the drama that is the 4-way race for the French Presidency.

In “Vive La France! A Bad Holocaust “Joke,” A Goldman Short Reco, And A 4-Way Race,” we documented the rise of far-left candidate Jean-Luc Melenchon, bemoaned (another) Holocaust blunder by Marine Le Pen, described the effect the drama is having on FX markets, outlined Goldman’s short reco on OATs, highlighted some great commentary from a loyal reader, and suggested that credit markets are getting jittery.  In other words, that was a good post and you should read it.

The next day (so that would be yesterday… we think), we brought you a rundown of analyst opinions about how to play the election or at least how to hedge.

We also noted that the 2-year France-Germany spread was blowing out (and “bigly”):

Well, as we draw closer to D-Day (that’s probably a really bad World War II pun), Goldman is out with a pretty interesting analysis of campaign rhetoric on the way to concluding that “words speak louder than actions” (something we here in America learned the hard way five months ago).

Excerpts are below and do note this in particular: “…. a simple textual analysis of recent speeches suggests that Messrs. Fillon and Macron have both sought (to various degrees and in various ways) to adopt the rhetoric and/or touch on the topics traditionally associated with populist candidates.”

Via Goldman

The first round of the French Presidential election will take place on April 23. Recent opinion polls suggest a tighter race than has been assumed thus far among the four main candidates: EU-sceptic right-wing populist Marine Le Pen (24%), centrist independent Emmanuel Macron (24%), centre-right François Fillon (19%) and EU-sceptic left-wing populist Jean-Luc Mélenchon (19%) (Exhibit 1).

In our view, the populist pull 1. seen in this election cycle to a large extent reflects the prevailing economic and socio-demographic conditions in France (notably the rising tension between (a) liberal, pro-European voters in France’s largest cities and (b) economically and/or socially conservative voters in France’s urban and rural peripheries).

While the focus of market attention has been on right-wing populist Marine Le Pen for several months, left-wing populist Mr. Mélenchon has emerged over the past two weeks of the election campaign as a serious contender for the run-off in the Presidential election. His improved momentum in polls (to the detriment of his immediate Socialist challenger Mr. Hamon) was likely triggered by Mr. Mélenchon’s performance in the two recent televised debates, in which (on the basis of polling) he was seen by viewers as the most convincing candidate, notably vis-à-vis Mr. Hamon.

In 2012, Mr. Mélenchon enjoyed a similar rise in the polls (reaching close to 13-15% of voter preferences) a few weeks ahead of the first round of the Presidential election, but on polling day he achieved a somewhat weaker performance than polls had suggested, achieving just 11% of the vote. A likely explanation for Mr. Mélenchon’s weaker-than-expected result in 2012 was the anti-austerity rhetoric of the then Socialist candidate, François Hollande, which attracted the left-wing electorate at large and squeezed the room available for a far-left candidacy.

In this election, we think the momentum (revealed by polls) building behind Mr. Mélenchon is likely to prove more persistent. Indeed, over the past five years, most centre-left politicians in France (including Messrs. Hollande, Macron, Valls) have gradually moved towards a more reformist and economically liberalising political platform, which is at odds with Mr Mélenchon’s stated objectives. Space therefore exists on the left of the political spectrum for Mr. Mélenchon to exploit.

Mr. Mélenchon’s communication seems to have had a decisive impact on recent trends in opinion polls. In electoral campaigns, words speak louder than actions. However, because Socialist candidate Hamon is unlikely to withdraw from the race, we think the support for Mr. Mélenchon is unlikely to rise much further (although Mr. Hamon has not yet reached his pre-primary level in polls of close to 6%).

Mr. Mélenchon’s success in boosting his poll ratings through his televised interventions may encourage the three main candidates on his right (i.e., Macron, Fillon and Le Pen) to tweak further their communication in order to maximise their chances of qualifying for the run-off election on May 7.

Nulla dies sine linea

To explore this possibility, we examine Ms. Le Pen and Messrs. Fillon and Macron’s speeches from January to April 2017, and identify the 50 words used with the highest frequency in those speeches by each of these candidates. Three features of the resulting ‘word clouds’ displayed in Exhibits 3 and 4 stand out.

Populism is fashionable. All three candidates have repeatedly referred to/criticised the “system” since January. Both Ms. Le Pen and Mr. Macron have railed against the incessant toing-and-froing of French politics between the centre-right and the centre-left (and implicitly the ‘establishment’ spanning the traditional left and right in the case of Ms. Le Pen; and the lack of cooperation within the mainstream, in the case of Mr. Macron). Mr. Fillon accused the “system” (i.e., the incumbent Socialist majority as well as journalists) of exploiting recent affairs to prevent him from running in the Presidential race. In our view, the assumption of more populist rhetoric by the mainstream candidates will make it more difficult for the mainstream candidate who reaches the second-round run-off to differentiate themselves from Ms. Le Pen’s position.

Ms. Le Pen has broadened the scope of her platform, and sees Mr. Macron as her main opponent. As we argued in the past, since the 2012 Presidential election, Ms. Le Pen has softened her rhetoric and sought to broaden the scope of her political platform to more economic or societal themes, such as healthcare or labour reform. This is similar to Mr. Mélenchon’s efforts to have a more structured approach to economic matters in this campaign. By doing so, French populist candidates are seeking to move away from a narrow protest vote and broaden their electoral base with a view to reaching government. Interestingly, Ms. Le Pen has been more vocal in criticising Mr. Macron than her right-wing rival Mr. Fillon, presaging a potential attempt by Ms. Le Pen to attract right-wing voters should Mr. Fillon be eliminated in the first round.

A campaign with no theme. While previous Presidential election campaigns had centred around one or two key themes (e.g., security issues in 2002, national identity in 2007, borders and austerity in 2012), on this occasion candidates have tackled a plurality of topics without focusing on a smaller set of more ‘divisive’ issues within French society. This likely reflects the ongoing political realignment of French politics, whereby candidates have to navigate two (relatively orthogonal) right/left and mainstream/populist fronts.

And Goldman’s conclusion from all of this: “Notwithstanding political uncertainty, we continue to think that a populist win in France is unlikely.”

Those “words” may in hindsight end up being of the “famous last” variety but on the bright side for Goldman, they wouldn’t be alone in that regard.