The economies are doing well, but the electorate does not agree

Fugnoli (Kairos Partners SGR): There is a legacy of inflation that the public has not yet digested.

The economies are doing well, but sentiment is low and this could guide voters' choices, especially in the next big electoral events, starting with the French one, with the legislative elections between June and July, concluding with big matches in the United States in November.«The electoral phases – explains Alessandro Fugnoli, Strategist of Kairos Partners SGR to Eccellenze d'Impresa – usually coincide with a period of economic boost. The Fed claims to be restrictive but in reality it is not that much. Because the Fed calculates a neutral rate, i.e. the rate starting from which it is restrictive, which is considered by many in the market to be too low. So in reality the neutral rate is much higher than what the Fed considers and this makes economic policy non-restrictive. All to say that the markets are at their best, the American economy is doing well." The signs of a slowdown, according to Alessandro Fugnoli, in America are very modest. Yet, across the West, sentiment is very low.

But why does this happen?«During the Covid years – continues Fugnoli – it was believed that general and electoral consensus could be achieved with massive reflation. We still feel this reflation today, but the public also feels it in the form of inflation, which is falling, but it still can't be seen from prices."The economies, therefore, are doing well, but the public is still unable to metabolise this legacy of inflation which risks costing President Biden dearly, first of all, and, in turn, also the EU. According to Fugnoli, a possible re-election of Donald Trump could easily lead to a protectionist system towards the American economy, which would also have repercussions on trade relations with the Old Continent.

Credit: Presidency of the Council of Ministers

In France, President Emmanuel Macron has to deal with a complex situation which, however, according to Fugnoli, will hardly be able to translate into a government. «The programs of the right and the left – explains Alessandro Fugnoli – are presented as very radical by the centre, which, in the meantime, also highlights with calculations how much it would cost to apply them. All this, obviously to move consensus towards the center itself. There are and will be changes, what I expect for France is not a clear shift, but a year of confusion. One of the risks is that it will not be possible to form a political government, but that we will have to resort to a technical government"

Credit: Presidency of the Council of Ministers

The word is up to the voters and the only breaking result would be a very clear affirmation from the Rassemblement National. This would allow Parliament to elect a government, even if the president does not agree, which is allowed by the constitutional reform of 2000 and would be the first time for the country. But, even in that case, Fugnoli invites reflection, pointing out that a hypothetical right-wing government, different from the majority that supports the President of the Republic, would have a rather difficult life. «Containment measures could come into action. The President may not sign the laws. For the Constitutional Court, which is entirely Macronian, the European Commission and the European Central Bank, a far-right government would be under special surveillance."

From this perspective, according to Fugnoli, we will have to look with particular attention at the second round, that of 7 July, where the Rassemblement National will aim for the votes of the centre. A dispute with bright tones and rapid pace, therefore. Where, however, the final result could be much more nuanced and messy. The biggest problem is that a France in a 'state of confusion', however temporary, has a negative impact on European policies. The European Commission will be substantially supported by the same political forces, but will have much diminished action because it will be without France.