On April 22 France will hold the first round of its presidential elections. Since the first voting is unlikely to provide any of the running candidates with an absolute majority there will be a ‘shoot-out’ between the 2 leading contenders on May 06. Polls suggest that François Hollande of the Socialist Party is leading the sitting President Nicolas Sarkozy by a slender margin. The race to the Elysée is far from over. All depends on who is making it into the second and decisive round and who attracts more votes of people who had previously backed unsuccessful candidates.
This election is important. Europe, a continent in crisis and not sure about itself, is once again looking to France for some guidance. History bears witness to the view that whatever happens in France has far-reaching consequences for the rest of Europe and beyond. So what are we to expect?
President Nicolas Sarkozy, the conservative candidate, and the German chancellor Angela Merkel worked very closely together during recent years. The couple became to be known as ‘Merkozy’ because the two politicians seemed to be inseparable. The European response to the crisis was shaped and subsequently pushed through by this Franco-German team. Austerity was first imposed on Greece, with devastating effects. Its economy has contracted for 4 consecutive years. Unemployment is rising fast (youth unemployment is above 50 percent). Ireland and Portugal were given the same sort of ‘medicine’. With Italy and now Spain in serious trouble, the European project is on the brink of collapse.
The problem is not so much the high level of sovereign debt (although that does not help of course) but the unsustainable level of private debt and a banking system which is effectively insolvent. Consumers laden with too much debt are in no position to spend, just as banks with broken balance sheets are in no position to lend (a deadly mix). With little or no private demand there is no point for companies to invest in new equipment or to hire new staff. But spending and investing is what creates growth. It is growth, and growth only, that reduces government deficits and makes debt manageable. In this situation governments would need to chip in with extra cash to compensate for absent private spending, but they do the opposite.
Zero or even negative growth is the major problem also in France. Rating agencies have spotted this and stripped France off its top credit rating. Sarkozy of course is responding with austerity, a strategy that has not worked elsewhere and one that is unlikely to win him a second term in office.
François Hollande has a somehow different agenda. He wants spending cuts to be compensated by tax increases for rich individuals and corporations. He also promises new hirings in the education system, an investment in the future. Hollande is not a revolutionary but he has a somewhat more sensible approach.
What does all this mean for Europe. If Hollande is to replace Sarkozy the Franco-German relation will change. Angela Merkel may find herself isolated among her European colleagues. The only remaining ally could be Italy’s Mario Monti. But he will be busy to stabilise his country. He is leading a government of technocrats that will step down in 2013 when general election are to be held. I am not sure if he can provide the sort of support Merkel needs to push ahead with her neo-liberal vision of the future.
Will this election mark another turn in history? We are in for a big decision.