Markets braced for shift away from austerity as Francois Hollande wins French election

Monday, May 7, 2012
By Paul Martin

Financial markets are braced for a radical shift in economic policy and fresh question marks over a eurozone break-up, as Francois Hollande moves into the Elysee Palace on Monday as the first Socialist president of France for 30 years.

By Roland Gribben
06 May 2012

A confrontation between the new president and Angela Merkel, Germany’s chancellor, is also high on the markets’ worry list.
However leading economists believe Mr Hollande will attempt a damage limitation exercise to avoid increasing turmoil in a eurozone facing further upheavals, with the result of this weekend’s Greek election increasing speculation about an eventual break-up of the fragile currency bloc.
Mr Hollande’s ‘farewell to austerity’ programme, which combines taxing the rich, raising public spending and lowering the retirement age, has raised the expectations of the French electorate about the end of the ‘Merkozy’ era.
But Ms Merkel is unlikely to cede ground in the face of Mr Hollande’s demand for a re-writing of the eurozone fiscal pact.
Christian Jimenez, a fund manager at Diamant Bleu Gestion in Paris, said: “Hollande’s victory has already been priced in by markets, however his promises made during the campaign have not been priced in, so there is risk on the downside if he stands his ground when he announces a first set of measures.

“There’s a clear need to boost economic growth across Europe, no question, but the debate is on how to achieve that without spooking investors. All in all, Hollande won’t be able to convince Merkel to soften her position on the need for austerity.”

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