Thursday, January 26, 2012

With Hollande in the lead, France may be making a shift to the left

With a dimming employment picture in France, chances of a potential regime change in that nation have increased substantially. Sarkozy, should he decide to run again, will be opposed (among other candidates) by the Socialist candidate, François Hollande, who was chosen by his party in the October primaries.

Based on Intrade probabilities, Hollande now has an over 65% chance of winning the presidential election this spring (although trading volumes have been quite low.)

Probability of Hollande winning the 2012 presidency

The opinion polls on the most likely scenario of Hollande vs. Sarkozy (in the second round of voting) paint a similar picture.

Source: BNP Paribas

WSJ: The poll, carried out by CSA Jan. 23-24, showed that 31% of potential voters would chose Hollande if elections were held now, while 25% of them would pick Sarkozy, CSA said. Hollande gained two percentage points, while Sarkozy lost one point since the last comparable poll held by CSA Jan. 9-10.
Other candidates such as a centrist Francois Bayrou could change the political landscape (it's not a two-party system like the US.)  Also the far-right candidate Marine Le Pen, who would push for France's exit from the Eurozone, has gained some ground. But for now it looks like Hollande is ahead. This is a significant development for the financial markets in France and may have implications for the Erozone as a whole. 
Bloomberg: “We must make an effort for more fairness and to rein in the financial industry,” Hollande said today as he detailed his campaign platform in Paris. “We will separate the speculative sector from the credit sector.” 
Hollande will clearly push for new French laws that would be similar to Vicker's recommendations in the UK. Other financial regulation such as prohibiting stock options could be considered as well .
Reuters: "In the battle ahead, my main adversary has no name, no face and no party. He will never run as a candidate. He will never be elected, but he rules inspire of all that. My adversary is the world of finance," Hollande said to a standing ovation in a packed conference hall on the northern outskirts of Paris.
Hollande would be the first Socialist president since Francois Mitterrand. Mitterrand too was not very fond of financial services:
Reuters: Mitterrand, who ruled France for 14 years, won power in 1981 a decade after he became Socialist Party leader with a similar tirade against what he then called the "power of finance, finance that corrupts, finances that buys, flattens and ruins, finance that rots through to the very conscience of man."
This election is particularly important given the pressure on Eurozone banks, the new Eurozone treaty and subsequent implementation of the ESM. Such change of leadership in France may even shift the balance of power in the Eurozone and potentially challenge the current state of Franco-German relations. In particular Hollande may pressure the Germans to have the ECB embark on quantitative easing involving direct purchases of sovereign bonds. This in what Hollande calls tackling "speculation efficiently".  Because to a true Socialist any negative market reaction is just another form of speculation.
Bloomberg: “I know how much you hold dear the rules on the independence” of the ECB, Hollande told delegates at the German socialists’ annual convention. “But equally I want it to take more notice of the situation in the world of the real economy.” The ECB must use its powers “fully” to combat the crisis, “expanding its role as a credit source to tackle speculation efficiently,”
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