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What I learned from the French presidential campaign

A last-minute attack, as many feared, can change everything.

A familiar feeling of tedium was settling in on Thursday night, as my friends and I watched the last TV event before the first round of the French election, held this Sunday. Instead of a never-ending debate with the 11 candidates, this time each candidate had ten minutes to defend their policies. All the same, the event was expected to run to four hours and 32 minutes. After the hard-left candidate Jean-Luc Mélenchon showed the alarm clock he had brought (because it is “time to wake up”), we were, quite ironically, falling asleep.

But around 9pm, something woke us up. Scanning through tweets, I spotted a news alert: “Shooting on the Champs-Elysées.” A policeman had died. My French friend and I looked at each other. It had started again – the dread, the speculation on social media, the comments from politicians, the inevitable recovery from yet another (possibly terrorist) attack. That feeling, too, is now a familiar one.

Last night’s events have shaken what was left of a hectic, infuriating campaign marked by scandals, extraordinary uncertainty and growing resentment towards the French political system. The Champs-Élysées shooting happened on the eve of the last day of campaigning. The conservative François Fillon and the hard-right Marine Le Pen both decided to cancel their events on Friday to hold press briefings instead. However, this meant they were effectively using the events on the Champs-Élysées as a last means of getting their message across. We need more security – vote for me.

By contrast, when news about the shooting filtered into the live TV debate, the centrist Emmanual Macron seemed to try too hard to look presidential, especially compared to Fillon, who channelled his real-life prime ministerial experience.

As my colleague Stephen made clear this morning, it’s Marine Le Pen who benefits from such security scares. But the changed mood could mean it's Fillon, rather than the great liberal hope Macron, who will face her in the run-off. It would be only logical to see the big crowds of undecided voters warm to an experienced conservative with a strong stance on security.

If it’s Fillon-Le Pen indeed, then my first lesson learned on the campaign trail in 2017 will be to never underestimate the voters’ fear – and the candidates’ capacity to play with it. As for lesson number two?

Accusations of rampant corruption will not bury a candidate. Apparently.

Only in March, I was charting Fillon's descent into scandal over multiple accusations of fraud and misuse of public money. It looked like his decision to cling on to his hopes of the presidency was an ego trip that could ruin his centre-right party. He is polling at 21 per cent, with Mélenchon on 18 and Macron on 23, all within the 2-3 point margin of error acknowledged by pollsters.

Fillon is is now on 21 per cent, with Mélenchon on 18 per cent and Macron on 23 per cent, again all within the 2-3 point margin of error used by most pollsters. Against Le Pen, all polls suggest Fillon would be victorious – a scenario now ridiculously plausible.

“So it’ll be Fillon-Le Pen, and Fillon will win,” was our conclusion last night. What a humiliation if France elects the candidate being investigated over allegations of misusing half a million euros of public money. He is even said to be ready to “pay the money back” if elected – an offer that sounds uncannily like a confession. (“Rends l’argent”, meaning “Pay the money back”, has become a meme used against Fillon on social media and on his campaign trail.)

Old French political parties are dying and must come to terms with rapidly changing times.

Fillon may win, but his party, and the centre-left party of the Socialist Benoît Hamon, have lost. The campaign has been fought by independents, from the loud “anti-elite” Le Pen and Macron’s personality-cult movement En Marche! to Mélenchon’s late but powerful Corbyn-like grass-roots movement. Big historical divides of left and right have been rejected by Macron and Le Pen, who both claim to be “neither left nor right”. Even if Fillon, the embodiment of the old politics, wins, he’ll be the last one from the country’s main parties.

Marine will rule France. In the meantime, her agenda will rule everything else.

Le Pen is not playing a short-term game. When her father reached the second round in 2002, I was eight years old. I remember an Italian friend at school saying goodbye to everyone – her parents had planned to move if he won. I grew up seeing his jackass party turning into her nationalist machine. It is hard to see an end to her rule, if only on the ideological front. Le Pen cannot really lose: each campaign she fights is a step closer to the goal and I am now certain nothing can stop her but herself. It will take a Front National presidency to defeat the Front National, for it to go full circle and replace the elite political entities it is now denouncing as out of tune.

There's one last feeling I know I'll come to regard as very familiar – and that's the feeling of grief I'll get seeing Marine Le Pen reach the second round.

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Labour's investment bank plan could help fix our damaging financial system

The UK should learn from the success of a similar project in Germany.

Labour’s election manifesto has proved controversial, with the Tories and the right-wing media claiming it would take us back to the 1970s. But it contains at least one excellent idea which is certainly not out-dated and which would in fact help to address a key problem in our post-financial-crisis world.

Even setting aside the damage wrought by the 2008 crash, it’s clear the UK’s financial sector is not serving the real economy. The New Economics Foundation recently revealed that fewer than 10% of the total stock of UK bank loans are to non-financial and non-real estate businesses. The majority of their lending goes to other financial sector firms, insurance and pension funds, consumer finance, and commercial real estate.

Labour’s proposed UK Investment Bank would be a welcome antidote to a financial system that is too often damaging or simply useless. There are many successful examples of public development banks in the world’s fastest-growing economies, such as China and Korea. However, the UK can look closer to home for a suitable model: the KfW in Germany (not exactly a country known for ‘disastrous socialist policies’). With assets of over 500bn, the KfW is the world’s largest state-owned development bank when its size is measured as a percentage of GDP, and it is an institution from which the UK can draw much-needed lessons if it wishes to create a financial system more beneficial to the real economy.

Where does the money come from? Although KfW’s initial paid-up capital stems purely from public sources, it currently funds itself mainly through borrowing cheaply on the international capital markets with a federal government guarantee,  AA+ rating, and safe haven status for its public securities. With its own high ratings, the UK could easily follow this model, allowing its bank to borrow very cheaply. These activities would not add to the long-run public debt either: by definition an investment bank would invest in projects that would stimulate growth.

Aside from the obviously countercyclical role KfW played during the financial crisis, ramping up total business volume by over 40 per cent between 2007 and 2011 while UK banks became risk averse and caused a credit crunch, it also plays an important part in financing key sectors of the real economy that would otherwise have trouble accessing funds. This includes investment in research and innovation, and special programs for SMEs. Thanks to KfW, as well as an extensive network of regional and savings banks, fewer German SMEs report access to finance as a major problem than in comparator Euro area countries.

The Conservatives have talked a great deal about the need to rebalance the UK economy towards manufacturing. However, a real industrial policy needs more than just empty rhetoric: it needs finance. The KfW has historically played an important role in promoting German manufacturing, both at home and abroad, and to this day continues to provide finance to encourage the export of high-value-added German products

KfW works by on-lending most of its funds through the private banking system. This means that far from being the equivalent of a nationalisation, a public development bank can coexist without competing with the rest of the financial system. Like the UK, Germany has its share of large investment banks, some of which have caused massive instabilities. It is important to note that the establishment of a public bank would not have a negative effect on existing private banks, because in the short term, the UK will remain heavily dependent on financial services.

The main problem with Labour’s proposal is therefore not that too much of the financial sector will be publicly owned, but too little. Its proposed lending volume of £250bn over 10 years is small compared to the KfW’s total financing commitments of  750 billion over the past 10 years. Although the proposal is better than nothing, in order to be effective a public development bank will need to have sufficient scale.

Finally, although Brexit might make it marginally easier to establish the UK Investment Bank, because the country would no longer be constrained by EU State Aid Rules or the Maastricht criteria, it is worth remembering that KfW’s sizeable range of activities is perfectly legal under current EU rules.

So Europe cannot be blamed for holding back UK financial sector reform to date - the problem is simply a lack of political will in the current government. And with even key architects of 1980s financial liberalisation, such as the IMF and the economist Jeffrey Sachs, rethinking the role of the financial sector, isn’t it time Britain did the same?

Dr Natalya Naqvi is a research fellow at University College and the Blavatnik School of Government, University of Oxford, where she focuses on the role of the state and the financial sector in economic development

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