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French president Nicolas Sarkozy is gaining ground with Francois Hollande, the presidential candidate for the Socialist Party, ahead of the first round of elections on April 22.But some are predicting a second round win for Hollande who has been criticised for some market-unfriendly pledges.
But the question remains: Do markets really need to worry about a Hollande win?
Alastair Newton, Nomura’s senior political analyst says many of Hollande’s pledges are unlikely to come into effect, but there are three key reasons why he prefers Sarkozy’s plan over Hollande’s:
- An austerity program that looked at higher taxes would hurt French competitiveness.
- Increasing public sector employment does not address structural unemployment. Instead he should try offer training opportunities for the unemployed or modifying the nature of unemployment benefits.
- On the European front, a Hollande win could create some friction with other European countries, especially Germany. Moreover, even if a Hollande win does somehow circumvent such frictions, Paris shouldn’t push to renegotiate the fiscal compact because it would send the wrong signal to a market at a time when policymakers and markets think that some progress has been made.
While Hollande’s rhetoric continues to scare financial markets, Newton thinks Hollande and Merkel could bury the hatchet including the handling of the eurozone crisis.
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