What The French Elections Mean For Europe

Merkel, Hollande

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The Socialist win at France’s June 17 election was an endorsement by the French electorate of President Francois Hollande’s ‘tax and spend’ domestic policies and his pursuit of  pro-growth policies. The other thing Hollande and his Parti Socialiste (PS) have going for them, is that PS secured 314  seats of a total of 577. This means PS won’t have to rely on the Green party or the anti-capitalist, anti-globalization, and anti-austerity Front de Gauche (FdG).

But what does the socialist majority mean for France and Europe? In his latest note, Nomura’s senior political analyst Alastair Newton says that in France this amounts to a mandate against austerity but that this won’t be a game-changer in Europe. Hollande will be able to push for more growth policies and push back against calls for deregulation in France:

“As for the eurozone, we believe that Mr Hollande will now see himself as strengthened in his quest to force Germany to agree to more pro-growth policies; and that he will therefore press German Chancellor Angela Merkel for further concessions within the overall framework of the proposed growth compact.

However, if our assessment of Ms Merkel’s overall strategy proves accurate, we doubt that she will be shifted significantly from the package of measures which we believe she and Mr Hollande broadly agreed at their 15 May meeting. 

…We also expect Mr Hollande to push back against calls for structural reform and deregulation in France and even toughen employment protection legislation, thereby compounding the frustration which has been engendered among some other eurozone members and the European Commission over the reversal of some of his predecessor’s pension reforms.

That said, French pressure for a eurozone-wide – if not EU – bank transaction tax is now likely to win more sympathy after Ms Merkel’s concession to Germany’s main opposition parties that she would lobby for such as a trade-off for their support for Bundestag ratification of the European Stability Mechanism and the fiscal compact (which has still to be concluded).”

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