Should Investors be Worried About France?

You’ve probably heard that the French presidential election is fast approaching (first round on April 22nd) and that the incumbent Nicolas Sarkozy is well behind in the polls. The socialist candidate Francois Hollande appears to be a strong favorite to be France’s next President when the final votes are tallied on May 6th. With the eurozone debt crisis heating up anew there is some concern that Mr. Hollande may be the last thing Europe needs: A socialist President in one of the most important eurozone members just as leaders desperately try to form a closer fiscal union.

There is certainly some cause for concern particularly because German Chancellor Merkel has formed a close bond with Sarkozy (so much so that they were dubbed “Merkozy”), however, Hollande’s bark is likely to be stronger than his bite. He was recently quoted making some eyebrow raising remarks:

“We wouldn’t be in such a mess if the European Central Bank very early on had massively bought sovereign bonds.”

“It would be much simpler if the central bank could just directly fund the debt of European countries,”

Perhaps it would have been much simpler if the ECB had stepped in and bought an unlimited number of periphery bonds when the Greece crisis first ignited during early 2010. However, this would have been venturing very deep into uncharted waters and would have served to bail out fiscally profligate governments, thereby further reducing incentives for governments to balance their budgets. Moreover, by suggesting that the ECB should directly fund the debt of eurozone member states Hollande seems to be skipping past the role of a fiscal authority which in the US we call the Treasury Department.

While Mr. Hollande may need to take a few lessons in economics and central banking he is moving down the same path as most of the other eurozone leaders toward a closer fiscal integration. Therefore, while he may appear to be a bit of a wild card to outsiders most of Hollande’s differences with Sarkozy lie in domestic issues which are of a much lesser concern to global financial markets.

Additional reading on Francois Hollande:

Bloomberg – ECB Becomes Campaign Issue as Hollande Slams Crisis Response

New York Times – The Soft Middle of Francois Hollande

BBC – Francois Hollande’s Secret Weapon: Cracking Jokes


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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