Hollande may convince French voters, but not the markets

The economic plans of François Hollande, the Socialist candidate in the upcoming French elections, are not credible and are a cause for concern, says Tom Beevers, manager of the Newton Pan European Fund.

“A shift to the left and a Hollande victory is expected,” he said, but the plans for the French economy, in particular how he proposes to reduce the French budget deficit, are “light on detail”.

“As far as we are concerned, Hollande’s numbers fail to add up. He has committed to reducing the French budget deficit to 3% by 2013 and to run a balanced budget by 2017. This represents a sizeable €100bn gap versus the current position, and will supposedly come in the form of €29bn from tax increases and the rest from growth above and beyond spending.

Hollande’s plans rely heavily on strong economic growth, says Beevors. “He predicts 1.7% GDP growth this year and annualised 2.5% growth for 2014 to 2017. But the stark reality is that France has only delivered this level of growth in two of the last ten years. With numbers which seem unlikely to be achieved, French bond markets are likely to react negatively to these fiscal consolidation plans,” he adds

Hollande’s campaign has been light on detail, says Beevors, making his choice of prime minister a key decision. “One option is the die-hard socialist, Martine Aubry, although we would expect her appointment to be received negatively, as it would suggest Hollande’s inability to consolidate power around the moderate left. However, the appointment of anyone else from the moderate left would be received positively. Meanwhile, there will be parliamentary elections in June, so policy uncertainty is likely to prevail until then,” says Beevers.

“Hollande has already been outspoken with regards to the Eurozone fiscal compact, stating his desire for renegotiations and a focus on growth rather than just austerity,” explains Beevers. “However, despite this posturing we believe he would be happy with cosmetic changes to the compact with minor additions rather than a total rewriting. What is likely to change is the tone of the whole debate in the Eurozone, with a growing emphasis on measures to stimulate growth,” he adds.

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