Analysis on Francois Hollande’s election as French president and what this means for austerity in France, Greece, and Europe.

The result of the French Presidential election was no great surprise in a way. In fact, when one considers that most of the first round competitors had endorsed Hollande, outgoing President Sarkozy did well to get 48% as against the mere 27% he received in the first round.

The centrist Bayrou, and the Left Front candidate Mélenchon, had both explicitly endorsed Hollande, and the National Front candidate Marine le Pen, most of whose supporters were otherwise trending in Sarkozy’s favour, said she was going to vote for nobody.

Voter distribution

The breakdown of the vote is interesting. Sarkozy did best in a northern block of territory, from Normandy over to the German border in Strasbourg, and Hollande did best in Paris and in the rest of France, apart from the Riviera. Unlike in the US, where women are more for Obama, and men more for Romney, the two candidates in France got more or less the same level of support from men as from women. Those with higher educational qualifications voted more for Sarkozy (54%/46%). So also did those who were financially better off. Employees were 54/46 in favour of Hollande, whereas business and self-were 58/42 for Sarkozy.

The age distribution of support was most marked. Those under 24 were 59/41 for Hollande. The 25 to 34 and the 50 to 59 age groups were for Hollande. But the 35 to 49 age group, and the over 60s, favoured Sarkozy.

The most remarkable cleavage of all was on the index of religious practice. Practicing Catholics were 73/27 for Sarkozy. Protestants were 61/39 for Sarkozy. But those who said they had no religion were 66/34 for Hollande.

Muslims supported Hollande by a margin of 93 to 7! Sarkozy’s anti-immigrant rhetoric and his talk about strengthening borders may have won him support from elderly voters, but it may make it difficult for his party to win Muslim votes in future elections—and they are a very important voting bloc in France.

Hollande is also committed to austerity

Some may think that the election of Hollande will mean an end to so-called austerity policies in France.  In fact, he gave that impression himself during the campaign. Outside France, some people have seized on Hollande’s campaign rhetoric as a sign that borrowing does not have to be reduced, and budgets do not have to be balanced. They are mistaken.

In fact, if those who voted for him read his programme closely, they would see that he is committed to getting the French budget deficit down to 3% of GDP by 2013, and to eliminating it altogether by 2017. That simply cannot be done without austerity, at least in France itself.

Of course a little less austerity in Germany might help achieve that goal, if it meant that more Germans bought French goods, or took their holidays in France.  But even that is not guaranteed.

France’s big problem is a poor export performance. Whereas Spanish manufactured exports are at 108% of the level they were at in 1999, French exports are now at only 72% of their 1999 level.  This is not, it seems, because French wages are too high, but rather because French companies have not innovated enough.

Meanwhile the French national debt is at its highest level ever, apart from the peaks it reached after the two world wars.

Hollande is committed to increasing the corporation tax on big companies to 35%, and reducing the tax on small companies to 15%. This would create an incentive to companies to stay small, which may not help the French export effort much.

He is also committed to employing more teachers. This will be difficult to reconcile with his plans to eliminate the budget deficit.

Meanwhile Hollande has to fight another election…

The immediate task facing President Hollande is that of winning a majority in the National Assembly. This may mean that he will avoid facing really difficult choices until June, when the Assembly elections are due, and stay in campaign mode until then.

His difficulty is that the financial markets may not give him the space in which to do that. If the markets feel that, in the medium term, the French budget deficit is going to rise faster than that of Germany, interest rates on French bonds will rise faster than those on German bonds. That could create problems for the euro, something to which President Hollande is committed.   

… and deal with the problem of Greece 

The Greek election result poses an even more immediate problem. Greeks favour staying in the euro, but do not favour the conditions on which they can access funds provided by the taxpayers of other euro countries.

These conditions involve reforming wage agreements, cutting pensions, improving tax collection, and cutting the cost of pharmaceuticals used in the health service. Some of the measures Greece was supposed to have taken by now, have not yet been taken.

The trouble is that things are so bad in Greece that many Greek voters convinced themselves that they could not get worse, and so voted for parties that want to reject the conditions on which money is currently being lent to Greece to keep its government functioning.

Unfortunately, things can get worse in Greece, if taxpayers in other countries decline to provide more funds. A collapse in the banking system, and a disorderly exit from the euro, would be worse than anything Greece has experienced so far.

As a new leader with a democratic mandate, President Hollande has a capacity to persuade the Greek people to see sense, to a degree that may not be open to other European leaders, including Chancellor Merkel. President Hollande can be persuasive in Greece because:

• France favoured Greek entry to the euro

• France never occupied Greece

• French banks have lent to Greece in the past

• Francois Hollande is a man of the left

All these things give him an authority to speak to the Greek people at a critical moment for them, and for Europe.

The views expressed in this article are the author's own and do not necessarily reflect Fair Observer’s editorial policy.