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What could go wrong for Macron

PHILIPPE LOPEZ | AFP | Getty Images

A collective sigh of relief was being felt by global markets in the aftermath of the first round of the French presidential election. As widely expected, centrist Emmanuel Macron and far-right National Front leader Marine Le Pen qualified for the second round of the elections, which had been described as historic and highly unpredictable.

The euro rallied across the board, equity markets jumped and French-German bond spread narrowed. Voila, this was the anti-climax that risk-averse investors had been hoping for. According to the latest IPSOS polls, Emmanuel Macron is seen beating Marine Le Pen in the second round on May 7 with two-thirds of the votes.

But before we keep the champagne (presumably a French bottle) flowing, here is a gentle nudge as to what could go wrong and why it may not all be smooth sailing in what are very choppy waters for Macron if he is elected into the Elysee on May 7.

First of all, Macron is not yet backed by any political party and may find it difficult to govern.

As Barclays stated in a report on Monday, they believe "the Parliamentary elections in June will carry more weight than usual, possibly even more than the Presidential election, but the outcome remains uncertain. In light of the statements from senior political figures – particularly from the Republicans, which is the only party in the top four to have a strong local base – parties appear to be intent on pursuing their own parliamentary campaigns, which might suggest that whoever wins the second round run-off will face a substantial opposition, even if that is Mr Macron. This would reinforce our view that a hung parliament is an increasingly likely prospect."

Secondly, his plan for reforms seems ambitious – a little too ambitious maybe given the lack of support he might face in parliament.

Among his priorities for the first 100 days in office are: a further labour law, to be implemented before the summer (though he may resort to an executive order to push this through) to tackle the stubbornly high unemployment rate of 10 percent (and almost 25 percent for youth).

Macron announced he will overhaul governance within politics, and launch an audit of public finances. He has vowed to cut public spending, currently 57% of GDP – the highest among advanced economies.

He also vowed to re-industrialize France based on innovation – not an easy task given that since the 1970s France has lost 2 million manufacturing jobs. His former boss, current President Francois Hollande has attempted several times to kick-start the French economy and improve its competitiveness but has failed to bring down unemployment sustainably, ultimately leading to his political demise.

For example, Hollande tried to freeze public wages but had to backtrack as pressure from powerful trade unions grew too large. Macron himself as Hollande's economy minister introduced the so-called "Macron law" to render the economy more agile – with limited success.

Aside from the economy, Macron will have to tackle the threat of terrorism, as France continues under state of emergency since the November 2015 attacks.

Thirdly, while more unlikely, there is the risk of the unknown – or shall we call it the Fillon factor? As Teneo Intelligence puts it: "Beyond the usual list of another security incident or a financial scandal involving Macron (personal controversies, in contrast, usually do not alienate French voters), the other potential risk is a series of gaffes by the candidate, particularly during the TV debate that will take place on 3 May. Despite not being a great TV debater, however, Macron has shown during the campaign that he can stay on message."

The challenges seem large, expectations are high and history may not be on Emmanuel Macron's side. On the other hand, this is Macron's unique chance to elevate France back to the upper echelons of economic prowess. With the current clearly against him, this won't be smooth sailing.

Carolin Roth is based in London and is an anchor for Street Signs as well as covering the Swiss market for CNBC. You can follow Carolin on Twitter @CarolinCNBC.

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