By: Dr. Mike Campbell
On Sunday, the French went to the polls to elect a new president. Since there was no clear victor, a second round of election will be held between the two candidates with the greatest share of the vote. On Sunday, incumbent President Nikolas Sarkozy came second to socialist candidate, Francois Hollande (with 27.1% of the vote compared to the challenger’s 28.6%), earning Sarkozy the dubious honour of being the first sitting president to lose a first round presidential ballot in the history of the fifth republic. The second round of elections will take place on May 6th.
Nikolas Sarkozy has never been the darling of the (largely) left-wing French press and does not enjoy vocal popular support in France. Sarkozy has been instrumental in France’s having adopted a strict austerity budget and has played a key role in the Eurozone’s handling of the sovereign debt crisis. News of his defeat at the first stage of the polls has been greeted badly by the markets and the Euro has also fallen. By mid morning on Monday, the German Dax was off by 2.5%; the French Cac 40 was down by 1.6% and London’s FTSE 100 was down by 1.5%. The Euro is trading lower against all the other major currencies and currently stands at $1.3149 (Monday).
The reason for the market jitters is that the current front runner, Mr Hollande, is advocating quite a different course to Mr Sarkozy. He has indicated that he would increase taxes on the rich (i.e. anybody earning above €1 million) and big corporations; boost the minimum wage; lower the retirement age from 62 to 60 for certain workers; and hire an additional 60000 teachers. Whilst the agenda is likely to be popular with the electorate, it is unlikely to be so with business or the investment community.
Market sentiment was not helped by the failure of the Dutch government to agree its own austerity measures, prompting speculation of early elections. Further woe was also added by weaker Eurozone manufacturing data.