Monday, May 7, 2012

France turns left with President Farcois Hollande

For the first time in seventeen years, a socialist candidate has won French Presidential elections. Francois Hollande's final round victory on Sunday, May 6 over Sarkozy has major implications for the Eurozone and Germany. The last socialist candidate to win was M. Francois Mitterrand in 1981, who remained President until 1995. The trend does not bode well for conservatives in the forthcoming French Parliamentary elections either, as socialists lead in the polls.

Sarkozy was the recipient of French anger for his arrogance and economic mismanagement. During the last few days he became so desperate to win that he swung hard right, making the most ridiculous statements against immigrants and the deprived that it drove away middle of the road voters. He is the first French President not to win re-election since 1981. It seems a Conservative wave that swept through Europe during the last 10-15 years may now be at an end.

The economy was the main reason for Sarkozy's defeat. He followed US Republican Party style economic management - no new taxes on the rich, but major cuts in social services. Francois Hollande promises a major policy shift and follows Barrack Obama style of economic management, reflating the economy with more cash infusion than cuts. He also plans to introduce a new tax on individuals making over One Million Euros a year.

Greece has also held elections during the weekend and Greek voters rejected right wing parties who had introduced major cuts to pension and social services. Even in the provincial elections in Northern Germany, socialist party has defeated the Conservatives.

It remains to be seen how Angela Merkel will handle this major change in Europe. She may no longer wield the influence that she did in the Merkel-Sarkozy coalition. Farocis Hollande is not likely to see eye to eye with her on major economic and social issues. The Greeks are already saying, they will reverse some of the earlier cuts. If Germany and Brussels put their foot down and insist on Greece following through on earlier commitments, Greece may well exit the Eurozone leading to a major upheaval and ultimate collapse of Euro as a currency.

Germany has been the biggest beneficiary of adopting Euro as their currency. The weak European economies of PIGS countries (Portugal, Italy, Greece and Spain) have kept the Euro pinned down against the US Dollar, making German products cheaper for exports. Had Germany stayed with the Deutschmark, that currency would probably have gone through the roof, making German exports expensive and non-competitive. So Germany needs to step up to the plate and contribute many times more (than it has done so far) to the European Bank, so credit is available to Eurozone countries in economic difficulties.

A short term victim of all this change may be the Canada European Free Trade Accord. There is no reason to suggest that it will not happen, but for now, it may be relegated to the back burner while France, Germany and other European countries deal with their new realities.

It is an irony that before becoming President, Mr. Sarkozy called the ghetto developers of Paris scum. During his five year Presidency, he did absolutely nothing to uplift the poor or assimilate them in the mainstream society. As fate would have it, it is Mr. Sarkozy who is now relegated to the political heap.


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