Moment of truth for the euro as France votes

Sat May 6, 2017 4:32pm EDT
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By Jonathan Cable

LONDON (Reuters) - The fate of the European Union and the euro could hang on the outcome of Sunday's French presidential election.

The expected victory of centrist, pro-EU candidate Emmanuel Macron would be taken by markets as a sign that political risk in Europe is receding; a surprise win for far-right candidate Marine Le Pen would raise the risk that the euro zone's number two economy could abandon the single currency and even leave the EU.

Surveys on Friday showed Macron ahead by 62 percent to 38, but investors are wary of opinion polls after recent political shocks such as Donald Trump's election to the White House and Britain's decision last year to leave the EU.

Le Pen has lately played down her plans to quit the EU and the euro, saying this may not be her top priority. But if she wins, the euro will fall around 5 percent in the immediate aftermath, a Reuters poll found this week.

No major survey sees her becoming president, but a victory would increase volatility in financial markets, particularly in European equities, bonds, and currencies. A vote for Macron would retain the status quo.

"We expect Macron to win the second round of the French presidential election on Sunday. This outcome should usher in a period of subsiding political risk in the euro zone," said Valentin Marinov at Credit Agricole.

Economic growth in the bloc will be steady but modest over the coming year, but that will depend partly on Macron getting the keys to the Elysee Palace, a Reuters poll of economists showed last month.

There is no major data due from the currency bloc in the coming week to shed light on how the economy has fared at the start of the second quarter, but numbers on Friday will show how industry rounded out the first quarter.   Continued...

FILE PHOTO: Wads of euro banknotes are stacked in a pile at the Money Service Austria company's headquarters in Vienna, Austria, March 3, 2016.   REUTERS/Leonhard Foeger