Investors panic over French election

Until last week, markets were sanguine about the French presidential election. The far right's Marine Le Pen was considered unlikely to prevail against the centrist Emmanuel Macron in the second round.

But now investors have been confronted with a new and alarming possibility: a run-off in early May between the far left and the far right. The former Trotskyist Jean-Luc Mlenchon has risen rapidly in the polls and with only a few points separating the top four candidates, there could be a second round between him and Le Pen.

"Success for either candidate would immediately lead to another EU crisis," says Buttonwood on Economist.com. Mlenchon wants to renegotiate EU treaties, while Le Pen has talked of reviving the French franc. Nor are his domestic policies any more appealing than Le Pen's. He sees himself as France's Hugo Chvez, and advocates old-style socialist policies such as a 32-hour working week, a salary cap and a retirement age of 60.

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The prospect of a run-off between the two extremes explains why the spread between French and German ten-year bond yields has hit its highest level since 2011.