There is lots of political news from Europe: a move to the socialists in France; destruction of PASOK in Greece; punishment of the Tories in Britain; huge demonstrations in Moscow; elections in Serbia.
A change of policy by the Socialists 'for growth' is not going to make any difference; there is no more growth, growth is dead.
French
president François Hollande promises 'a new start' for Europe
After
victory over Nicolas Sarkozy, Socialist says he will fight back
against German-led austerity measures
6
May, 2012
François
Hollande has won the presidency of France, turning the tide on a
rightwards and xenophobic lurch in European politics and vowing to
transform Europe's handling of the economic crisis by fighting back
against German-led austerity measures.
The
57-year-old rural MP and self-styled Mr Normal, a moderate social
democrat from the centre of the Socialist party, is France's first
leftwing president for 17 years. Projections from early counts,
released by French television, put him on 51.9% and Nicolas Sarkozy
on 48.1%.
His
emphatic victory is a boost to the left in a continent that has
gradually swung right since the economic crisis broke four years ago.
From
the town of Tulle in his rural heartland of Corrèze in southwest
France, Hollande declared victory. "May 6 should be a great date
for our country, a new start for Europe, a new hope for the world,"
he said. "I'm sure in a lot of European countries there is
relief, hope that at last austerity is no longer inevitable."
He
said his mission was to go to European leaders to demand measures for
"growth, jobs and prosperity". Hollande's first move as
president will be to push Germany to renegotiate Europe's budget
discipline pact to include a clause on growth.
Hollande
said France had voted for "change", but he had a "heavy"
responsibility to drag the country out of economic crisis. Vowing
that France would no longer be fractured, divided or riven by
discrimination, or those in the poor high-rise suburbs and abandoned
rural areas cast aside, he said: "No child of the republic will
be abandoned."
Sarkozy,
defeated after one term in office, became the 11th European leader to
be swept from power since the economic crisis in 2008. He conceded
defeat at a gathering of his party activists at the Mutualité in
central Paris, urging them from the stage to stop booing Hollande. "I
carry all the responsibility for this defeat," he said. He had
spoken to Hollande to congratulate him.
"From
the bottom of my heart I want France to succeed with the challenges
it faces. It is something much greater than us, France. This evening
we must think exclusively of France." After 35 years in politics
and 10 years at the top of government, he would now become a simple
"Frenchman among the French".
The
defeat of the most unpopular French president ever to run for
re-election was not simply the result of the global financial crisis
or eurozone debt turmoil. It was also down to the intense public
dislike of the man seen as "President of the Rich" who had
swept to victory in 2007 with a huge mandate to change France. Most
French people felt he had failed to deliver his promises, and he was
criticised for his ostentatious display of wealth, favouring the rich
and leaving behind him more than 2.8 million unemployed. Political
analysts said anti-Sarkozyism had become a cultural phenomenon in
France. The turnout was high, estimated at around 80%.
Hollande
is the first Socialist president since Francois Mitterrand's
re-election in 1988. Thousands of cheering supporters, including many
intellectuals and arts figures, massed at Paris's Place de la
Bastille, a flashpoint of the 1789 French revolution, where the left
celebrated Mitterrand's first historic victory in 1981.
Hollande's
win comes after a brutal and vitriolic campaign marked by support for
the far-right Front National's Marine Le Pen, who came third in the
first round with 17.9% and 6.4m votes. Sarkozy, who launched his
campaign with a marked right-wing slant on the values of work, family
and national identity, lurched even further to the right as he
courted Le Pen's voters in the past two weeks, stressing the
far-right topics of immigration, borders and fear of Islam.
Socialists
are hoping Hollande's victory is backed with a sweeping majority for
the left in parliamentary elections next month.
Hollande,
who has vowed to begin his reforms as soon as he takes office on 15
May, has accepted he will have "no state of grace" leading
a country crippled by public debt and in economic crisis, with
unemployment nudging a record 10%, a gaping trade deficit, stuttering
growth and declining industry. Public debt is so high that interest
repayments alone account for the highest state expenditure after
education. The rating agency Standard and Poor's this year downgraded
France's triple-A credit rating, citing in part that over-high state
spending was straining public finances. Both Hollande and Sarkozy had
promised to balance the books; France hasn't had a balanced budget
for over 30 years.
Hollande's
manifesto is based on scrapping Sarkozy's tax breaks for the rich and
levying more from high earners to finance what he deems essential
spending, including creating 60,000 posts in France's
under-performing school system. He has pledged to keep the public
deficit capped but for his delicate balancing act to work he needs a
swift return to growth in France, despite economists warning of
over-optimistic official growth forecasts that need to be trimmed.
Downing
Street said David Cameron had called Hollande to congratulate him. Ed
Miliband, the Labour leader, said: "This new leadership is
sorely needed as Europe seeks to escape from austerity ... He has
shown that the centre-left can offer hope and win elections with a
vision of a better, more equal and just world."
In
parliamentary elections in Greece, governing parties backing the
EU-mandated austerity pact were on course for a major drubbing as
hard-hit voters defected in droves, according to exit polls.
In
a major upset that will not be welcomed by the crisis-plagued
country's eurozone partners, the two forces that had agreed to enact
unpopular belt-tightening in return for rescue funds appeared headed
for a beating, with none being able to form a government.
After
nearly 40 years of dominating Greek politics, the centre-right New
Democracy and socialist Pasok saw support drop dramatically in favour
of parties that had virulently opposed the tough austerity regime
dictated by international creditors.
Francois
Hollande has ten weeks to avert a French bond crisis
There
will be no speculative attack against French bonds on Monday morning
because François Hollande has been elected president, the first
socialist to take the Élysée since the Mitterrand debacle of 1981
Ambrose
Evans-Pritchard
6
May, 2012
The
phantom army waiting to pounce is the cynical invention of the
Sarkozy campaign. Any fears of a Leftist lurch have been in the price
for weeks.
What
is true is that the CAC-40 index of French stocks has underperformed
Germany’s DAX by 20pc since last August, an ominous divergence for
two countries yoked so tightly together. The yield spread of German
10-year Bunds over French OAT bonds has jumped 90 basis points.
This
parting of the ways pre-dates the "Hollande scare". It goes
beyond downgrade jitters, or fears of contagion from $710bn of French
bank exposure to Italy, Spain, Greece, Ireland, and Portugal (IMF
data). It reflects a gut feeling in global markets that France is
sliding into deep trouble, clinging to a ruinously expensive social
model in a Teutonic monetary union and a Chinese trading world.
French
economists say the moment of danger will come later this summer -
whoever is elected - as the full force of Europe’s contraction
crisis hits France.
“They
absolutely must cut public spending and control the debt,” said
Marc Touati from Global Equities in Paris. “It will soon be clear
that we are in deep recession. If they don’t act fast, interest
rates will shoot up and we will have a catastrophe by September,”
he said.
Fiscal
tightening a l’outrance across Euroland is a grave policy error, he
said, but ‘AA’ France nevertheless has to deal with reality.
The
country lacks the credibility to go for growth alone under the
constraints of monetary union. It is trapped.
Mr
Touati blames the European Central Bank - BCE in French or “Banque
Contre L‘Economie” as he calls it - for making matters far worse
by needlessly pushing the whole Euro zone system into a slump out of
“blind ideology”.
Star
fund manager Edouard Carmignac makes much the same critique. His
indictment of the pre-Draghi ECB is ferocious, but that does not
alter the strategic dilemma for French leaders. Protracted slump
makes it all the more imperative for each euro member to put its own
house in order.
“If
Hollande strays too far from virtue, French rates will go through the
roof. France will not be able to borrow,” he said.
My
own view is slightly different. The German deflation regime is - in
the current circumstances - the greater threat to Greco-Latin
societies, and to post-War comity in Europe. Sometimes you have to go
through a cathartic trauma to break free.
But
it is also true that Germany’s own democracy may turn fractious if
policy strays too far from German needs and Grundgesetz. This is
EMU’s curse. It destabilizes each nation state in turn, each in
different ways - a “negative sum game”.
The
worst of all worlds would be a nasty spat between Mr Hollande and
Chancellor Angela Merkel that poisoned the atmosphere without
bringing about any substantive change to Europe‘s “asphyxiation
compact”.
Watch
the French debt auctions on May 3 and May 16 carefully, says Sophie
van Straelen from the French hedge fund consultancy Asterias.
If
they go well, a President Hollande may start to think that bond
vigilantes will stomach his big state romanticism.
“Our
belief is that he has no choice. He must increase taxes and cut
spending, otherwise markets could panic and we will have a disaster,”
she said. The crucial deadline is the budget proposal in July.
Mr
Hollande has already hinted at complacency, suggesting that market
calm over the last two weeks is a vote of confidence in his policies.
It is no such thing.
Paris
has a strange atmosphere right now. It is hard to get a table at the
bistros of Saint-Germain, yet people have a sense of foreboding.
They
know austerity has hardly begun. The press is full of stories that
the biggest property bubble ever known in France has begun to
deflate. Yet the party goes on. Perhaps this is what it felt like in
May 1931, avant le déluge.
Germany
took its medicine with the Hartz IV labour reforms eight years ago -
under a Social Democrat, nota bene - when the world was humming and
EMU competitors were merrily inflating their way into varying degrees
of fixed exchange rate Hell.
France
will have to take its medicine in less propitious times, somehow
clawing back 20pc in unit labour competitiveness against an austere
Germany.
It
is not easy to see how France can pull this off. Little has been done
so far beyond repeal of the infamous 35-hour week. Labour rigidities
- employment protection, high tax wedge and minimum wage (SMIC), etc
- are among the most entrenched in the OECD club. The unreformed
French state takes 55pc of GDP.
The
current account has swung from a surplus of 3pc of GDP to a deficit
of nearly 2pc in twelve years. France’s share of EMU exports has
dropped from 17pc to 13pc. French trade data has become an “event
risk”, keenly watched by traders.
Mr
Hollande must know the dangers of “socialism in one country”
under a currency peg. He was a Mitterrand aide when such an
experiment blew up in 1983, leading to the `tournant de la rigueur’
or epic U-turn.
Markets
won’t wait so long this time.
Yet
he may be prisoner of events if he fails to win an outright majority
in the legislative elections in June and has to rely on the
fast-rising Front de Gauche -- the neo-Communist movement of Jean-Luc
Melenchon with 11pc of the vote.
History
buffs will remember the events of 1936 when Leon Blum’s Front
Populaire came to power with “New Deal” rhetoric and Communist
backing. Investors rushed for the exits, forcing the franc off the
Gold Standard. The money crossed the Channel.
“Conversations
in French became increasingly commonplace in the City of London, as
French citizens made arrangements to open sterling bank accounts,”
writes Barry Eichengreen in Golden Fetters, my favourite book on the
Great Depression.
There
are signs that it is happening again, says Louise Cooper from BGC
Partners. If Italians were the biggest foreign buyers of top
properties in London last year, the French are catching up this year
in the £3m to £5m range.
“London
property is like German Bunds - somewhere safe to park cash,” she
said. Is it capital flight? Hard to tell.
Historian
Nicolas Baverez said the French are in a natoinal sulk, idealizing a
mythical past and retreating behind a new Maginot Line. Europe has
become the great scapegoat.
“I
am convinced that France will stand at the centre of the next Euro
zone crisis,” he says.
Luckily
for Mr Hollande, global markets have not yet reached their merciless
verdict..
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