For France’s Hollande, the hard work starts now as markets see red
French Socialists were ecstatic at their first presidential election win in 17 years, but there was no celebratory mood in regional or global financial markets on news of François Hollande’s victory, with immediate sharp falls in the euro currency and in Asian stockmarkets.
Japan’s Nikkei 225 index plunged 2.7% after earlier hitting a three-month, intraday low amid a rising yen. Hong Kong’s Hang Seng slid 2.4%, Tokyo stocks closed down 2.79% and in Singapore, it was down by just under 2%.
Financial consultant Iain Anderson, from Cicero Group, told Sky News it had been “a sea of red” in Asian markets. “They may be celebrating at the Bastille but they’re not really looking forward to Europe’s woes in Asia,” he said. “I think we’re going to have a very turbulent ride over the next few days and weeks.
The result was not a surprise, but combined with wins for other anti-austerity parties in Greece, and even Germany, where a state poll in Schleswig-Holstein saw support for Chancellor Angela Merkel’s party drop 30%, suggested a new political and economic era for Europe. Germany’s national elections are set for 2013.
Sarkozy becomes the 11th European leader to be swept away by resistance to the tough financial measures proposed by Eurozone policymakers. With sovereign debt at 90% of GDP, France lost its prized AAA credit rating in March.
Hollande, with a narrow 3.5% win over rival Nicolas Sarkozy, pledged his agenda to change those would begin immediately.
In his election campaign, the new president had declared the financial sector his main enemy, promising new taxes on the rich and on business, in particular the banks, and government spending to support the unemployed and those struggling under the austerity measures taken to lighten France’s debt. He also supports the controversial “Tobin tax” on European financial transactions.
Analysts said the vote was as much against the style and under-delivery of Sarkozy, the first French president since Giscard d’Estaing to manage only one term of office, as for the mild-mannered Hollande, who portrayed himself as “Mr Normal”, the low-key ordinary citizen who has never held high office.
The result positions France, with feeble economic growth and a 10% unemployment rate, at the lead of a number of European political parties hitting back at austerity measures within the “Fiscal Compact” for budgetary discipline devised and advanced by Chancellor Merkel, who had publicly backed Sarkozy in pre-poll electioneering.
Hollande intends to re-negotiate the terms of that Compact, signed only two months ago by 25 EU leaders, insisting on more pro-growth measures. That process will call into question the “Merkozy” axis which has been seen and promoted as the stable core of Eurozone policy.
The habitual congratulatory messages from other European leaders to an election win were somewhat tardy, and some have already publicly cast doubt on how much Hollande will be able to deliver on his promises, noting that election results do not normally result in the renegotiation of previously agreed multi-lateral treaties.
Indeed, the Eurozone insisted ahead of recent polls in Italy, Spain and Greece, that pre-election pledges be adhered to by the winning party, whatever their own manifestos had said
Analysts said Hollande had also dramatically raised expectations among voters for lower taxes, more jobs and better state provision which might prove difficult to meet.
On Friday, the last day of campaigning ahead of a “day of contemplation” when all electioneering is suspended, bellwether French 10-year bond yields fell to 2.87%, a level not seen since early October. Traders expect that to be tested soon after markets re-open this week. “Once the party hangover has gone, I think Hollande will find the reality of power is that he has very little room for manoeuvre,” said one. “This may be his happiest hour.”