Markets await detail of Hollande’s ‘pro-growth’ policies

François Hollande’s victory was priced into markets before the poll, so there was no panic on the result. But the financial community, the new leader’s declared ‘enemy’, now braces itself for details of his ‘pro-growth’ policies.

The euphoria that convulsed at least half of France on François Hollande’s 6 May victory focused on the change of style from previous incumbent Nicolas Sarkozy.

“Normal”, the headline in France’s leftist Libération newspaper the next day, recognised that more low-key image and the new era it seeks to represent.

But for the financial and business community, Hollande (pictured) threatens a return not to ‘normality’, but to everything they have been working to minimise since France’s last Socialist government was in office 17 years ago.

Early in his election campaign, Hollande sweepingly declared “the world of finance” his new enemy. On the domestic front, he has proposed hiking to 75% the ­personal tax rate for those earning more than €1m a year.

He supports Sarkozy’s proposal for an EU financial transactions tax, inclines towards a return to France’s notorious 35-hour working week, and a reversal of his predecessor’s hard-won ‘reform’, raising the minimum retirement age to 60 from 62.

Downside risk ahead

Hollande talks of “financially sustainable” pension ­packages and deals, but has rejected moves to offer unions flexible working hours and salaries to avoid redundancies. Instead, he wants employers to bear more social charges and pay a higher minimum wage.

All these policies will impact French corporates. Since unfolding crises in both Spain and Greece look even more forbidding, the Paris stock market took less of a hit than expected in the days after the poll. However, investors see ­overwhelming downside risk ahead.

On the wider European stage, Hollande’s immediate push back against the budget discipline and austerity measures championed by Germany Chancellor Angela Merkel seem to cast doubt on the Franco-German ‘core’ upon which the rest of the eurozone project is built.

Merkel, who publicly backed Sarkozy before the ­­election, quickly made clear there will be no dilution of the painful measures needed to address national debt (France’s stands at 90% of GDP). Merkel’s parliamentary party leader Volker Kauder was even more blunt when he said: “Germany is not here to finance French election promises.” 

What exactly Hollande’s ‘pro-growth’ agenda entails is not yet clear, and some charge it is close to meaningless. “No-one is ‘against’ economic growth,” says one ­analyst. “And if France has to choose between standing next to Germany or with the southern European countries, it will choose Germany. France does not consider itself a ­peripheral EU nation.”

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