No other leader of a major power would dare say such a thing. If Hollande, who will be France’s first Socialist president in 17 years, simply defies “the markets”, they will certainly punish him and France severely. However, it remains to be seen how he plays his hand.
Hollande still has one hurdle to cross before he is officially president-elect, but he beat incumbent president, Nicolas Sarkozy, even in the first round of voting when 10 candidates were running. In the run-off vote on Sunday, the polls predict that he will trounce Sarkozy by a margin of 14-16%.
Hollande is a shoo-in because in the second round his centre-left party will collect almost all the votes of parties to the left of the socialists, and also most of the votes of the centrist candidates. Sarkozy leads a centre-right party, but he has to pretend to be much harder right than he is for much the same reasons as Republican presidential candidate Mitt Romney in the United States.
If Sarkozy does not spout anti-immigrant, anti-Muslim rhetoric, he will not even win over the 18% of French voters who backed the far-right National Front on April 22. If he does talk like that, he will lose the swing voters in the centre —– and he may still not get the endorsement of National Front leader Marine Le Pen, who reckons that if Sarkozy loses the presidency his party will disintegrate, making her own party the dominant force on the right.
So it will be Hollande, who recently said that “if the markets are worried (by my policies), I will tell them here and now that I will leave them with no space to act”. Tough words, but what does “no space to act” actually mean? Does it mean anything at all? The markets don’t think so, which is why they did not go into meltdown as soon as Hollande’s election became a certainty.
Hollande is certainly tougher and smarter than the “Mr Normal” who he claims to be. His calm, modest manner presents a striking contrast to the hyperactivity, bad temper and sheer bling of Sarkozy, but he graduated from France’s most respected post-graduate school for high flyers, the Ecole Nationale d’Administration, and he has been in politics for more than 30 years.
For over a decade he was the leader of the famously fractious Socialist Party, and was nicknamed “Meccano-builder” for his ability to bridge the endless personal and ideological disputes, a process he once likened to picking up dog turds. And he has not promised French voters the moon.
What Hollande has actually promised is slightly less austerity than Sarkozy. He will balance the French budget by 2017, rather than 2016. For symbolism’s sake he will introduce a new 75% income tax band for people who earn more than a million euros, but he understands that bringing the budget deficit under control must be accomplished mainly by cutting spending, not raising taxes.
The markets will not have it any other way, and they have France in a corner. In order to cover the interest on its existing debt plus this year’s budget deficit, France must borrow almost one-fifth of its entire Gross Domestic Product this year, and the same again next year. Most of that enormous sum must be borrowed from foreign lenders, so Hollande cannot afford to frighten them by radically changing the austerity policy he inherits from Sarkozy.
He says what he must to get elected, but in office Mr Normal is likely to conduct business as usual – or at least, that is what the markets think. It may be too simplistic a view. Hollande doesn’t agree with the current European orthodoxy, because it has put the eurozone (the 17 out of 27 European Union members that use the euro “single currency”) into an economic death-spiral.
Germany’s huge and healthy economy gives it the whip-hand in the eurozone. Berlin insists on savage austerity measures by EU member governments to bring their budgets back into balance, but if the austerity is so extreme that it kills economic growth, then the budgets will never balance. Hollande argues that growth, especially in the form of big infrastructure projects, must be stimulated by easier credit even while budgets are still in deficit.
Many European leaders agree, as do outside observers like Nobel Prize-winning economist Paul Krugman, who said recently that Europe would “commit suicide” if it did not add reflationary policies to strict budget discipline. Hollande will not start printing money right away, because the euro means he cannot, but he is certainly going to argue for “quantitative easing” (as we now call reflation).
Without openly defying Berlin, he is likely to become a rallying point for Europeans (and there are a great many of them) who believe that the eurozone will never solve its crisis without economic growth in other countries besides Germany. “Change in France will allow Europe to shift direction,” he says. He may be right.