French presidential elections showed a strong following for anti-eurozone candidates, and even stronger for anti-austerity only EU/ECB policy. This will have consequences for th futre of the euro in a context where the Europe is heading back in recession and Spain is in deep trouble. France is also facing very strong social and economic challenges ahead.

1. http://marketsandbeyond.blogspot.com/
http://www.pcgwm.com/
French Presidential Elections: First round and why it does matter
1. Results
For the first time under the Vth Republic, the incumbent President is behind
his main challenger.
The official results are as follows (I do not provide the meaningless result from Jacques
Cheminade):
2. Consequences
One of the central conclusions of the campaign is the rejection of the EU as it
currently works and calls for increasing protectionism: even Sarkozy demands
modifications to the Shengen accord and Hollande a renegotiation of the Lisbon Treaty. A
quick analysis of the results show that, in one way or the other, the vast majority
campaigned on a platform that will lead to a frontal shock with Germany:
budget balance and austerity vs. social welfare and deficits, southern Europe vs. Northern
Europe, domestic demand oriented growth vs. export oriented growth.
In addition, both Sarkozy and Hollande built their programs on an over-
optimistic GDP growth forecast to cut borrowing at 0.7% in 2012, 1.75% in 2013 and
2% until 2016, well above consensus (most politicians do overstate future growth to buy
votes). and neither is addressing the key issues holding back growth. For example, last
week the IMF revised down 2013 French growth to 1.0%.
1

2. http://marketsandbeyond.blogspot.com/
http://www.pcgwm.com/
Whoever is elected President on May 6, he will not be able to hold by his
promises. This will have a number of consequences:
• Spread between OAT and Bund will widen
• The eurozone will again come under strain and attack from markets (i.e. investors)
• France will loose it AA+ and be downgraded (over a 18 months period, one notch if
Sarkozy is elected, two notches if it is Hollande)
• Expect social unrest within 12-18 months, particulalry if Sarkozy is elected
Then, the Parliamentary elections will come in June and there is no chance
whatsoever that the current ruling party wins, even if Sarkozy is re-elected. The
antagonism with the Front National is too entrenched and the possibility for the Front
National candidates to have enough votes to remain in 1/3 of constituencies for the second
round.
If Sarkozy is not elected (the likely outcome as of today since over 1/3 of Bayrou and 40%
of Le Pen voters will abstain for the second round, the rest will go +/- 50/50 for each
remaining candidate), I also expect the current ruling party to fall in shambles with
infighting between Coppée (current Head of the ruling party - UMP) and Fillion (current
Prime Minister – a senior member of UMP) each preparing for the next Presidential race
in 2017 (Fillion will present himself at the mayoral election for Paris).
I then forecast the Front National to try its utmost to organize the opposition to the the
socialists around its platform, with some with the right wing of the UMP joining forces
with the National Front, and possibly Dupont-Aignan.
2

3. http://marketsandbeyond.blogspot.com/
http://www.pcgwm.com/
Source:
Ministère de l’Intérieur: Presidential elections 2012
http://elections.interieur.gouv.fr/PR2012/FE.html
Ministère des Finances: Stratégie Pluriannuelle de Finances Publiques
http://www.budget.gouv.fr/files/mise-a-jour-rapport-economique-social-financier.pdf
Capital Economics: French election won’t tackle key issues
www.capitaleconomics.com
3