The impact of France's decision on the economic climate in Europe.

Background

Europe's second largest economy faces important decisions this year. After the Presidential elections in April and May, legislature elections are to take place in mid-June. These will show whether the elected government will be successful in effecting its programmes or whether, yet again, compromise within a period of cohabitation will be called for. The French are more prudent in 2012 than they were during former presidential elections. A majority voted for the two moderate candidates Nicolas Sarkozy (UMP – Union pour un Mouvement Populaire) with 27.2% and Francois Hollande (PS – Parti Socialiste) with 28.6% during the first round of elections in April. Both candidates have another week to prove their strengths and offer their weaknesses to the electorate before a final decision will be reached in the second round on May 6th.

However, extreme protest votes have also been of importance as nationalist Marine Le Pen (FN – Front National) won about six million votes and was less than ten percentage points behind incumbent President Nicolas Sarkozy. Communist leader Jean-Luc Melenchon (PC – Parti Communiste) with his popular anti-austerity plans, received 11.1% of total votes. This expresses just how unpopular Sarkozy has become.

Common to all candidates however was their strongly anti-European and anti-liberal discourse in a France whose debt rating has been slashed from triple A to AA+, whose public debt has hit 86.1% of GDP with zero economic growth predicted by the Bank of France, and where 9.4% face unemployment (with the youth unemployment rate touching 22.4%). France is a country hit by the crisis, and as Francois Bayrou of the democratic movement warned in the pre-electoral debates, might be facing the same fate as Portugal or Spain. In his article in the "Courrier International", Eric Cholargues that in the absence of a consensus, and a lack of courage by its leaders, France has seen its "European dream" turn into "economic horror".

Why is it relevant?

General dissatisfaction with Sarkozy’s policy style makes Francois Hollande a favorite for the second round. Hollande is against austerity and wishes to create more than 60,000 new jobs in the national education system. However he is not clear about how exactly he intends to cut expenses, and his plans to tax incomes over €1mn have also scared away France's wealthiest. Some have already started preparing for their flight to Belgium or Switzerland in case of his election.

However, his pragmatic and consensual attitude has made people see him as the only candidate who could truly hold his own against Angela Merkel’s unpopular austerity plans for the European Union. He represents a force of opposition, which for the moment seems nonexistent in Europe. In a note in the New York Times, Paul Krugman says Hollande should be supported, because of, rather than in spite of, the fact that his economic policy is unclear, while Sarkozy’s is more delineated: “If Sarkozy somehow pulls off an upset win, it will mean more of the same European economic orthodoxy — the insistence that fiscal responsibility is the only virtue and austerity the universal answer. This orthodoxy somehow retains its grip despite overwhelming evidence that it’s wrong and disastrous failures in practice.”

Hollande has already announced that if elected, he plans to renegotiate the European Treaty signed during Sarkozy's presidency. Hollande believes he has support not just from the European Left but also from the conservatives who might be saying to themselves that the current direction will only result in victory for the populists. Therefore, those who seek a change of direction in Europe, including politicians in Germany, hope for Hollande's victory and the consequent end of the ‘Merkozy’ politics of budgetary equilibrium.

French presidential elections this year are therefore far from a regional or private affair, and the whole of Europe is observing it keenly.