Friday, April 20, 2012

As the French prepare to vote, a fog of financial uncertainty envelops France

To the list of worries about the euro zone, add one in bold
writes Liz Alderman on the front page of the International Herald Tribune:
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.

… investors are already alarmed by what they see as an erosion of competitiveness among French companies, a widening current account deficit and declining exports.

As a result, investors say France is drifting away from the “core” of strong European economies that include Germany and the Nordic countries. Instead, it is increasingly being lumped together with the weak large economies of Spain and Italy, along Europe’s troubled southern rim.

… Mr. Hollande, in contrast, is pledging to increase taxes on the wealthy to pay for significant new spending intended to spur the economy. He promises to raise 29 billion euros (about $38 billion) in new revenue while lifting spending by 20 billion euros.

A main Hollande plank includes introducing a 75 percent marginal tax rate on individual income above 1 million euros and forgoing the planned increase in the value-added tax. And rather than cut the government payroll, he has pledged to expand it by hiring 60,000 civil servants and teachers. Mr. Hollande would also reverse changes to the pension system instituted under Mr. Sarkozy, by pushing the retirement age back to 60, from 62.

That platform, Mr. Lefeuvre said, is why many foreign investors are hoping for Mr. Hollande’s electoral defeat.

“If he does win, there will be a lot of concern,” Mr. Lefeuvre said.