Presidential Election In France Raises New Concerns For France's Credit Rating

[koala_bear]

http://www.nytimes.c...ner=rss&emc=rss

'PARIS — To the list of worries about the euro zone, add one in bold: the fate of France as it heads into the first round of a closely contested presidential election this weekend.

After a long stretch in which President Nicolas Sarkozy grappled with the euro crisis, investors are now wrestling with the implications of a potential victory by the Socialist candidate, François Hollande. Mr. Hollande's pledges of higher taxes on the rich, and higher government spending, are luring voters disenchanted by the austerity medicine Mr. Sarkozy has administered in hopes of protecting France from financial contagion.

Many investors, though, are questioning what a government run by Mr. Hollande would mean for France's economic competitiveness and its ability to keep clear of the financial turmoil that has once again lifted the borrowing costs of two other big euro zone countries, Spain and Italy.

A surprisingly successful bond auction by Spain on Tuesday at least temporarily buoyed the financial markets in Europe and the United States. But the underlying concerns for Spain and the region have not gone away. And with polls showing Mr. Hollande as at least an even bet to oust Mr. Sarkozy, a fog of financial uncertainty has enveloped France, Europe's biggest economy after Germany.

"If you combine an election of François Hollande with a worsening economic situation, no improvement in Spain, and a possible new downgrade of France by the ratings agencies, there is a high likelihood" that France's borrowing costs will also rise, said Evariste Lefeuvre, chief economist at the French investment bank Natixis in New York.

Such sentiments are viewed warily by many French voters, and Mr. Sarkozy's opponents, who are exasperated by what they see as a crass effort by financial players to browbeat France into accepting more of the type of austerity measures that have squeezed growth in Greece, Spain and other troubled euro zone countries.

The German derivatives exchange, Eurex, ignited a political furor in France when it began trading a futures contract Monday enabling investors to hedge their bets on French government debt. The apparent premise is that France's creditworthiness could slip if the government — whether led by Mr. Sarkozy or Mr. Hollande — backslides on efforts to cut its debt and deficit.

Executives at Eurex said the timing was a mere coincidence. But for the bristling French, there was no ignoring that it came just days before voters head to the polls this weekend to narrow a sprawling field of French candidates down to two, with a final presidential runoff scheduled to take place May 6.

Mr. Hollande blamed the German exchange for encouraging speculation on France's insolvency, and said that if he were elected, he would try to get the new Eurex contracts eliminated.

With the campaign heating up, Mr. Hollande accused Mr. Sarkozy of encouraging market speculation against France by playing up fears that Mr. Hollande's supposed tax-and-spend programs, together with his inexperience in dealing with the financial crisis, could push France's borrowing costs toward levels that would make it harder for the nation to pay down its debt.

France's government debt will near an estimated 90 percent of gross domestic product this year — the fifth highest in Europe and well above Germany's estimated 78 percent, according to the International Monetary Fund. '

sounds like france is bug***** anyway.will be interesting to see what happens to the UK when zanu labour get back in.

= More wealth French people emigrating (there are 300k of them in London already!) => more London HPI :angry:

It will be amusing to see the look on French politicans faces when they get downgraded 6 weeks after Hollande gets in

[Georgia O'Keeffe]

http://www.nytimes.com/2012/04/18/business/global/french-presidential-election-stokes-investor-concern.html?_r=1&partner=rss&emc=rss

'PARIS — To the list of worries about the euro zone, add one in bold: the fate of France as it heads into the first round of a closely contested presidential election this weekend.

After a long stretch in which President Nicolas Sarkozy grappled with the euro crisis, investors are now wrestling with the implications of a potential victory by the Socialist candidate, François Hollande. Mr. Hollande’s pledges of higher taxes on the rich, and higher government spending, are luring voters disenchanted by the austerity medicine Mr. Sarkozy has administered in hopes of protecting France from financial contagion.

Many investors, though, are questioning what a government run by Mr. Hollande would mean for France’s economic competitiveness and its ability to keep clear of the financial turmoil that has once again lifted the borrowing costs of two other big euro zone countries, Spain and Italy.

A surprisingly successful bond auction by Spain on Tuesday at least temporarily buoyed the financial markets in Europe and the United States. But the underlying concerns for Spain and the region have not gone away. And with polls showing Mr. Hollande as at least an even bet to oust Mr. Sarkozy, a fog of financial uncertainty has enveloped France, Europe’s biggest economy after Germany.

“If you combine an election of François Hollande with a worsening economic situation, no improvement in Spain, and a possible new downgrade of France by the ratings agencies, there is a high likelihood” that France’s borrowing costs will also rise, said Evariste Lefeuvre, chief economist at the French investment bank Natixis in New York.

Such sentiments are viewed warily by many French voters, and Mr. Sarkozy’s opponents, who are exasperated by what they see as a crass effort by financial players to browbeat France into accepting more of the type of austerity measures that have squeezed growth in Greece, Spain and other troubled euro zone countries.

The German derivatives exchange, Eurex, ignited a political furor in France when it began trading a futures contract Monday enabling investors to hedge their bets on French government debt. The apparent premise is that France’s creditworthiness could slip if the government — whether led by Mr. Sarkozy or Mr. Hollande — backslides on efforts to cut its debt and deficit.

Executives at Eurex said the timing was a mere coincidence. But for the bristling French, there was no ignoring that it came just days before voters head to the polls this weekend to narrow a sprawling field of French candidates down to two, with a final presidential runoff scheduled to take place May 6.

Mr. Hollande blamed the German exchange for encouraging speculation on France’s insolvency, and said that if he were elected, he would try to get the new Eurex contracts eliminated.

With the campaign heating up, Mr. Hollande accused Mr. Sarkozy of encouraging market speculation against France by playing up fears that Mr. Hollande’s supposed tax-and-spend programs, together with his inexperience in dealing with the financial crisis, could push France’s borrowing costs toward levels that would make it harder for the nation to pay down its debt.

France’s government debt will near an estimated 90 percent of gross domestic product this year — the fifth highest in Europe and well above Germany’s estimated 78 percent, according to the International Monetary Fund. '

sounds like france is bug***** anyway.will be interesting to see what happens to the UK when zanu labour get back in.

France has among the lowest income taxes in develoed Europe as it goes, particularly if you have nippers it could compete with Switzerland, they do however have amongst the highest NI equivalent (like most of Europe they have this fcked up contribution based system for NI putting it light years behind the UK) which brings it up to a commonish level with the rest of Europe but if i was a Brit on PAYE who was actually productive France would pretty much seem like a tax haven compared to the UK.

The big problem with France isnt its taxation so much, the issue is more that theres loads of French living there but you can even overlook that on the S Coast

Edited April 18, 2012 by Georgia O'Keeffe

[swissy_fit]

French presidents rarely do what they say they'll do during the campaign,so I can't believe anyone is really worried about this.

No-one will complain either, they're even more used to lying politicians than the Brits.

[zugzwang]

France may be the domino that causes the euro to collapse

Martin Hutchinson, moneymorning.com, wallstreetexaminer.com

Whether or not France brings down the euro hinges on the outcome of its upcoming presidential election, set for two rounds April 22 and May 6.

France's current position is very confused, to say the least. No fewer than five candidates have a chance to make it into the two-candidate runoff.

The incumbent, Nicolas Sarkozy, is currently running slightly behind the mainstream socialist Francois Hollande, but three other candidates potentially could knock one or the other of the front-runners out of the second round.

They are Marine LePen, a nationalist; Francois Bayrou, a moderate; and Jean-Luc Melanchon, an extreme leftist.

Presumably if any of those three made it to the second round, they would be beaten by the remaining major party candidate, as was LePen's father by Jacques Chirac in 2002.

But it has to be said that electoral prognostication is exceptionally difficult.

If Sarkozy or Bayrou win, nothing much changes; France remains committed to the current consensus Eurozone policies and the Eurozone probably "muddles through."

But if one of the other three wins, there is going to be a big problem for the European Union (EU).

LePen would be anathema to the EU leadership, so even if she committed to continue austere fiscal policies, the markets would probably react badly.

As for a Hollande or Melanchon victory, the commitment to government austerity is just not there. In the current nervous state of the markets, France's budget deficit could become impossible to finance.

Hollande, for example, wants to reverse Sarkozy's earlier raising of France's pension age, while also pushing the top income tax rate to 75%.

An election win by Hollande or (very unlikely) Melanchon would simultaneously weaken the credibility of France's own austerity program and weaken the Eurozone coalition that has imposed austerity on Greece, Portugal, Ireland, Italy and Spain.

That would almost certainly cause markets to attack French government bonds, as well as stepping up the attack on Spanish, and probably Italian, government bonds.

The reality is that a France managed by an anti-austerity leftist, even a moderate one, is simply too far from Germany and Scandinavia in its fiscal management and economic outlook to remain part of the same currency zone.

And even if Germany and Scandinavia wanted France to remain part of the euro, they don't have the resources to bail France out.