Francois Hollande defeated French President Nicolas Sarkozy as voters handed control of the second-biggest European economy to the Socialists for the first time in 17 years.
The 57-year-old Hollande got about 52 percent against about 48 percent for Sarkozy, according to estimates by pollsters CSA and Harris Interactive. The campaign isn’t over; France elects its lower house of parliament in five weeks.
The challenger inherits an economy that is barely growing, with jobless claims at their highest in 12 years and a rising debt load that makes France vulnerable to the financial crisis that has rocked the euro region the past two years. Sarkozy became the ninth euro leader to fall in that time and the first French president in 30 years to fail to win re-election.
“Hollande’s bet was that rejection of Nicolas Sarkozy was enough to get him elected,” Dominique Reynie, senior researcher at Paris’s Institute of Political Studies, said before the vote. “The message was that if you don’t like Sarkozy then I’m your best bet.”
Sarkozy’s departure may sharpen tensions with key allies as Hollande has advocated a more aggressive European Central Bank role in spurring growth -- a measure opposed by Germany -- and an accelerated withdrawal from Afghanistan.
While Socialists stand ready to dominate policy making for the first time since 1993 -- holding both the presidency and the Cabinet -- bond yields suggest Hollande may maintain market confidence. Ten-year French debt yields 124 basis points more than comparable German securities. That’s down from 145 basis points after he won the first round April 22 and lower than the 133 basis points at the start of the year.
‘Exaggerated’ Concern
Concern of a Franco-German cleavage undermining economic policy making in the euro region is “exaggerated,” Morgan Stanley chief economist Joachim Fels wrote in a note today.
An election in Greece today pointed to the potential landmines. Greek voters flocked to anti-bailout groups, the first exit poll showed, throwing doubt on whether the two main parties, New Democracy and Pasok, can form a coalition to implement spending cuts to ensure the flow of bailout funds.
At home, Hollande faces the task of increasing competitiveness, cutting the budget deficit and spurring growth while keeping the region’s financial woes at bay. Campaigning against the most unpopular president ever in post-war France, he avoided specifics.
“We expect resistance to change and proposals to preserve France’s social model to prevail once Parliament reconvenes after June 26,” Natacha Valla, a Paris-based economist at Goldman Sachs Group Inc., wrote on May 4.
Hollande sought to portray himself as the anti-Sarkozy leader, calling himself “normal” to contrast with the incumbent known in the media as “President bling-bling.”
Following Mitterrand
A lawmaker from the central and rural Correze district, Hollande is the second Socialist president of the Fifth Republic, established in 1958. Francois Mitterrand was first.
His path to power followed a traditional French route. He graduated from the Institute for Political Sciences in Paris and the National School of Administration, schools that trained all post-war presidents, except Sarkozy and Charles de Gaulle.
He was educated at HEC-Paris, a business school where he befriended some who were to become corporate leaders, such as Axa SA (CS) Chief Executive Officer Henri de Castries. His social circle includes Jean-Bernard Levy, CEO of Vivendi SA, and Jean- Louis Beffa, former CEO of Cie. de Saint-Gobain.
In the early 1980s, Hollande went to work for Mitterrand, helping him nationalize companies. A decade later, he helped Prime Minister Lionel Jospin sell them to help the Socialist government cut its debts to join the euro.
“The pressure to clarify the position after a change in government will be high and it will be immediate,” said Steven Major, head of fixed-income research at HSBC Holdings Plc in London. Investors are “looking through the election and reasoning that the government will fall into line.”
Higher Taxes
Hollande has proposed higher taxes for big companies and cuts for small and medium-sized businesses; a 75 percent levy on incomes above 1 million euros a year and special taxes on banks and oil companies.
His platform would raise spending by 20 billion euros ($26.3 billion) over his five-year term and the retirement age for those who started working at 18 years old pushed back to 60 from 62. He said he would discuss with France’s banks the split of their retail and investment activities.
Tax increases and eliminating loopholes would seek to raise 29 billion euros. The budget plan aims to eliminate the deficit in 2017, one year later than under Sarkozy’s plan, with a 3 percent of gross domestic product deficit target for 2013.
For Europe, he has called for re-negotiating the German- inspired deficit rules that leaders agreed upon in December. At the same time, he reached out to France’s neighbor and biggest trade partner.
Contacts Made
A German government spokesman said that diplomatic contacts had been made with the Hollande camp. Pierre Moscovici, his campaign chief and a possible key member of the future government, told Frankfurter Allgemeine Zeitung newspaper on May 5 that the new government would not create a ’’crisis’’ with its main partner.
German Finance Minister Wolfgang Schaeuble indicated May 4 enough flexibility to allow Hollande to “save face.”
“I’ve said that everybody who gets freshly elected into office must be able to save face,” Schaeuble said. “So we will discuss this with Hollande in a very friendly way. But we won’t change our principles.”
A native of Rouen, the Norman city where Joan of Arc was burned at the stake by the English in the 15th century, Hollande has spent his career mainly behind the scenes and kept his position as party leaders even after two humiliating Socialist losses under his watch -- in 2002 and 2007.
In 2007, Segolene Royal, the mother of his four children, lost to Sarkozy. In the subsequent months, she announced their separation. Hollande now lives with Valerie Trierweiler, a journalist for Paris Match magazine.
Asad Khan
Financial Analyst (CFB) Trading Team
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